Start With Steel

Start with steel
A practical plan to support carbon workers and cut emissions

Tony Wood and Guy Dundas
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Overview
Australia has an historic opportunity to create a new, export-focused is available and affordable, than in the Pilbara – despite the cost of
manufacturing sector based on globally competitive renewable energy. shipping iron ore to the east coast.
The opportunity is more than building wind and solar farms – we can
use wind and solar to make energy-intensive ‘green’ commodities. Investment at a global scale must come from the private sector. But
Australian governments should act now to ensure we can capture this
If we get it right, we will resolve a climate conundrum that threatens our opportunity.
economic prosperity and has stretched our political fabric for more than
a decade. The key is building local skills and capability in low-emissions
steel-making in the next decade. This is best achieved through
Australians are very exposed to the effects of climate change – through government funding to support a steel ‘flagship’ project. This could
our health, our agriculture, and our tourism – but we are also a large involve gas instead of hydrogen in the interim, providing a lower cost
exporter of fossil fuels. Our climate politics reflect this. In the 2019 and commercially proven path to green steel. Western Australia, with
federal election, regions with large numbers of ‘carbon workers’ – its low-cost gas, could play an important role. And moving towards
workers in industries such as coal mining, fossil fuel power generation, lower-emissions steel could help sustain existing steel-making jobs in
and aluminium smelting – swung strongly towards the Coalition with its Port Kembla or Whyalla.
less ambitious climate targets. Labor’s assurances of a ‘just transition’
to a low-emissions future failed to resonate. But new clean energy Low-cost hydrogen storage will be an important part of the process.
industries can create tens of thousands of jobs – comparable to those Governments should fund and publish pre-commercial studies of the
in existing carbon-intensive industries. And these jobs could be in the geological potential in Australia for hydrogen storage. And federal,
same regions that host carbon-intensive industry today. state, and local governments should all play a role in coordinating
land-use planning and regional development, and in supporting
In this report, we assess the potential of three sectors that could help workforce retraining.
make Australia a green energy ‘superpower’: aviation fuel, ammonia,
and steel. Our analysis concludes that green steel represents the best Australia can also support a new, sustainable biofuels industry that
opportunity for exports and job creation in key regions. uses non-food biomass sources. The federal government should
investigate the costs and benefits of a policy requiring a share of
Green steel uses hydrogen, produced from renewable energy, to domestic aviation fuel to come from such biofuels. This could create
replace metallurgical coal to reduce iron ore to iron metal. Australia’s significant regional economic opportunities – potentially many hundreds
renewable resources make it a lower cost place to make hydrogen, and of jobs in places like Collie, Portland, and the Latrobe Valley.
therefore green steel, than countries like Japan, Korea and Indonesia.
But to do this at a global scale, Australia will also need a large industrial This exciting, credible opportunity for Australia will not be delivered in
workforce – such as those found in central Queensland and the Hunter 2020, but it will become clearer over the next few years. The hard work
Valley. It is cheaper to make green steel in those places, where labour must begin now.
Table of contents
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1 Australia’s climate conundrum . . . . . . . . . . . . . . . . . . . 5
2 Australia’s clean energy opportunity . . . . . . . . . . . . . . . . 14
3 Carbon workers can help capture this opportunity . . . . . . . . 26
4 Governments should plan for this future . . . . . . . . . . . . . . 34
A Technical notes, assumptions, and benchmarking . . . . . . . . 39

1 Australia’s climate conundrum

Australians – and Australian political leaders – broadly understand Figure 1.1: Regions that depend on carbon-intensive industries swung
and support the need to act on climate change. By ratifying the ‘Paris harder to the Coalition in the 2019 federal election
Agreement’, the Australian government agreed that all countries must Two-party preferred swing to the Coalition by SA2 (negative values are swings
work to limit global warming to well below two degrees Celsius.1 to Labor)
But Australia is stuck in a climate conundrum. Political leaders need to

balance the national interest – which requires strong global action on
climate change – with the legitimate interests of regional communities
and workers in carbon-intensive industries, who feel threatened by
this action. These ‘carbon workers’ seem to have rejected the more In Moranbah (Qld.),
half the workers are
ambitious emissions reduction targets that Labor took to the 2019 in carbon-intensive
jobs, and the region
federal election (Figure 1.1).2 swung 10 points to
the Coalition
The future of Australia’s carbon-intensive industries, particularly coal

mining, will be determined primarily in Beijing and New Delhi, not
In Torquay (Vic.), fewer than 1 per cent
in Canberra. Carbon workers deserve honesty about the ability of of workers are in carbon-intensive jobs,
and the region swung 8 points to Labor
Australian governments to ‘protect’ their jobs. The government’s current
approach – modest domestic emissions reduction targets – will not
effectively protect jobs in the face of global climate action. Nor does
0.1%
it help capture the economic opportunities Australia might have in a
Proportion of workers in carbon-intensive industries (log-scale)
decarbonised world. This ultimately works against Australia’s national Notes: ‘SA2s’ or ‘Statistical Areas Level 2’ are ABS-defined regions that represent
interest. a community that interacts together socially and economically. They usually contain
3,000 to 25,000 people. ‘Swing’ is the weighted average swing from polling booths
within the SA2.
1.1 Global climate action is in Australia’s national interest Sources: Grattan analysis of ABS (2017) and AEC (2019).
Taking action on climate change is hard. It is particularly hard for
Australia, as a major exporter of fossil fuels and with high levels of
1. With an aspirational target of limiting warming to 1.5°C above pre-industrial levels:

Article 2, Paris Agreement 2015.
2. Labor’s policies included a 45 per cent reduction in emissions from 2005 levels by
2030. The Coalition’s target was 26-to-28 per cent: Slezak (2019).

emissions per person. But, despite this, global climate action is in 2019-20.6 Drought continued across the Murray-Darling Basin.7 And
Australia’s national interest. over the 2019-20 summer, the Great Barrier Reef suffered its third
mass bleaching event in five years.8
This is easily missed in public debate, because the losers from climate
action are more visible than the winners, and the costs come sooner Recent events reflect longer term trends across Australia’s economy
than the benefits. Prime Minister Scott Morrison’s framing of the issue and society.
emphasises the more immediate and tangible costs of action, and
ignores the costs of inaction: The agricultural sector is already struggling to adapt to the changing
climate. Rainfall has declined across the main agricultural regions
Currently no one can tell me that going down that path [net zero of eastern Australia (Figure 1.2 on the following page), and this is
emissions] won’t cost jobs, won’t put up your electricity prices, trimming profits for broadacre farmers (Figure 1.3) – by 22 per cent,
and won’t impact negatively on jobs in the economies of rural and or $18,600 per farm each year.9
regional Australia.3
The effects were worse for cropping farmers, with average profits down
This framing perhaps explains why the Australian government is 35 per cent – resulting in $1.1 billion less revenue per year for the
focused on ‘zero cost or low cost’ technological solutions for reducing cropping industry.10 1.5°C of warming will further reduce Australia’s
emissions.4 farmland productivity, and the effects at 2°C would be worse again.11
But it is an unbalanced framing. Climate change and global climate Parts of the tourism sector are directly threatened by a warming
inaction will have significant costs for Australia. While Australia cannot climate. The Intergovernmental Panel on Climate Change (IPCC)
solve this global problem on its own, an honest debate about the costs warns that ‘the Great Barrier Reef is expected to degrade under
of reducing emissions must also acknowledge the costs of not reducing all climate change scenarios’12 – bad news for the 35,000 tourism
emissions. And it is clear that the consequences of global inaction – workers who directly depend on it, and the $2.7 billion that its tourist
the costs of living with several degrees of warming – will be very bad for activities add to the Australian economy each year.13 Alpine regions
Australia.
6. Boer et al (2020).
The year 2019 highlighted the costs of inaction on climate change.
7. BOM (2019).
Australia was 1.5°C hotter than average. Temperature records were set 8. Great Barrier Reef Marine Park Authority (2020) and T. P. Hughes et al (2019).
and broken, while rainfall was at its lowest level on record.5 Bushfires Over 2016-2018, large coral reef systems such as the Great Barrier Reef lost up
burned unprecedented swathes of Australia during the summer of to 50 per cent of their shallow water corals: Hoegh-Guldberg et al (2018, p. 229).
9. Figures are for the average broadacre farmer: N. Hughes et al (2019).
3. Morrison (2020). 10. Ibid.
4. The Minister for Energy and Emissions Reduction, Angus Taylor, in discussing the 11. Hoegh-Guldberg et al (2018, p. 250).
Australian government’s Technology Investment Roadmap, has said that ‘the goal 12. Reisinger et al (2014, p. 1401).
for each technology is to approach economic parity or better, which means the 13. Deloitte Access Economics (2017, p. 69). These figures are the direct contribution
shift to lower emissions is zero cost or low cost’: Major (2020). only. Another $3 billion of value is generated indirectly through tourism. The reef
5. BOM (2020a). also supports jobs in aquaculture, recreation, and science.

Figure 1.2: The main agricultural regions in Australia’s east and south- Figure 1.3: Climate change has already reduced farm profits across large
west have become drier over the past half-century swathes of Australia
Change in average annual rainfall (mm) for the 30 years spanning 1986-2015 Average farm performance in current climate conditions (2000-2019),
compared to 1956-1985 compared to long-term average (1950-2019)
Wetter Farm profit percentiles
100 –
Near highest
90 –
100 – Above average
50 – 70 –
20 –
About average
-20 –
-50 – 30 –
-100 – Below average
10 –
Near lowest
0–
Drier
Lack of data
Not farmland
Source: Grattan analysis of BOM (2020b). Source: N. Hughes et al (2019).

are expected to suffer as declining snow cover deters skiers. And more insurance premiums costing more than 1 per cent of the property’s
frequent heat waves will make the Northern Territory less attractive for value.23
tourists due to the risk of heat stress.14 The possibility of more natural
disasters also threatens the industry: the 2019-20 bushfires deprived And the health impacts are worrying too. A warmer climate means
many regions of their seasonal tourist trade.15 more heat waves: these directly threaten lives, and force workers in
occupations such as mining and farming to sacrifice productivity for
For insurers, cyclones, storms, and floods cause greater losses than their safety.24 And extreme weather threatens mental and physical
fires or other disasters: more than 80 per cent of insured losses since wellbeing. For instance, Australians affected by bushfires have higher
1980.16 Over the past decade, these disasters caused insured losses rates of mental health problems over the long term,25 and bushfire
in Australia of at least $20 billion.17 And a warmer climate will increase smoke causes more people to go to hospital with respiratory-related
the intensity of storms, even in areas expected to receive less rain on problems.26
average.18
Climate change poses risk across the Australian economy. It’s
unsurprising that the governor of the Reserve Bank, Philip Lowe,
Flooding and cyclones regularly disrupt the mining industry too;19 these
has warned that the ‘economic implications [of climate change] are
risks could rise with more intense rainfall.20 And water availability is
profound’, and are already affecting Australian investment decisions
also a concern, with large miners unable to rely on their existing water
and exports.27
licenses during prolonged drought.21
The overall picture is bleak for asset owners in a warmer climate. 1.2 Climate action threatens the interests of some Australians
An uptick in the frequency and severity of natural disasters will raise
Climate action is in the broad national interest, but some Australians
insurance premiums and make some assets effectively uninsurable.22
do not agree. Understandably, the people who live in regions that are
An increasing share of homeowners will feel the pinch; more than 5
home to large fossil fuel extracting and emissions-intensive industries
per cent of properties are expected to face annual weather-related
may have a different view on climate action than those living in the rest
of the country.
14. Reisinger et al (2014, p. 1401). Australia has close to 100,000 ‘carbon workers’ (see Box 1 on the
15. Tourism Australia (2020).
16. Munich RE (2020).
next page). About half of these carbon workers are concentrated in
17. Grattan analysis of Insurance Council of Australia (2020). particular geographic areas (Figure 1.4 on page 10).
18. BOM and CSIRO (2020, pp. 3, 8).
19. In March 2017, Tropical Cyclone Debbie damaged key rail infrastructure in the 23. Premiums above this threshold are effectively unaffordable: Steffen et al (2019,
Bowen Basin of Queensland, halving Australia’s metallurgical coal exports in April: pp. 6–7).
Cunningham et al (2019). 24. Hanna et al (2011).
20. Reisinger et al (2014, p. 1399). 25. Bryant et al (2018).
21. Ker (2019). 26. Duckett and Mackey (2020, p. 8).
22. Reisinger et al (2014, p. 1403). 27. Durkin (2020).

Box 1: What is a ‘carbon worker’?
This report frequently refers to ‘carbon workers’. These are Australians process,b and its need for constant electricity makes a transition to
working in carbon-intensive industries such coal mining, oil and gas low-emissions electricity particularly difficult in places that do not have
extraction, fossil fuel electricity generation, cement manufacture, and abundant hydroelectricity. Also, the electrolytic aluminium smelting
‘integrated’ steel-making using blast and basic oxygen furnaces.a reaction has traditionally relied on carbon anodes, which release
carbon dioxide as they are used.c
We include integrated steel-making because it is inherently
emissions-intensive – coal is a primary input, and carbon dioxide is
Workers in land-use, agriculture, or transport sectors are generally
a major byproduct of the process. This is in contrast to steel-making
excluded, though each sector significantly affects Australia’s
using an electric arc furnace, which can easily switch to zero-emissions
emissions.d Land-use – such as clearing or replanting forests – can
electricity. Manufacture of cement clinker is inherently emissions-
be either a source or sink of emissions, and so is not inherently
intensive due to the heating of limestone (calcination), which releases
emissions-intensive. Meat and Livestock Australia, the research and
carbon dioxide.
marketing body for the red meat industry, has committed the industry
We have not defined workers in all energy- or electricity-intensive to be carbon neutral by 2030.e And the prospects for decarbonising
industries as carbon workers. This is because fossil fuel energy transport, such as through electrification, are good. But we have
sources can generally be substituted for low-emissions energy sources. included port and rail workers in regions with a significant number of
We made one exception: aluminium smelting. Aluminium smelting is coal workers, because many of these jobs directly depend on the coal
vastly more electricity intensive than any other large-scale industrial industry.
a. In the 2016 Census, employed people are matched to an industry according to the Australian and New Zealand Standard Industrial Classification (ANZSIC). The following
industries were deemed carbon-intensive: Coal Mining, Gas Supply, Oil and Gas Extraction, Fossil Fuel Electricity Generation, Cement and Lime Manufacturing, Aluminium
Smelting, Petroleum Refining and Petroleum Fuel Manufacturing, Petroleum Exploration, and Other Petroleum and Coal Product Manufacturing. Integrated steel-making is also
included – these worker numbers were determined separately from Census data – but steel recycling in electric arc furnaces was not. If at least 1.5 per cent of workers in an SA4
(an ABS-defined region usually containing 100,000 to 500,000 people, and representing a labour market) worked in Coal Mining, the following ANZSIC codes were also deemed
carbon jobs: Mining and Construction Machinery Manufacturing, Lifting and Material Handling Equipment Manufacturing, Other Mining Support Services, Water Transport Support
Services, Water Freight Transport, and Rail Freight Transport.
b. Daley and Edis (2010, p. 9).
c. ‘Inert’ anodes offer a carbon-free alternative; these are being developed and commercialised internationally: Rio Tinto (2018).
d. Ha (2019).
e. MLA (2020).

Figure 1.4: A number of Australian communities have significant concentrations of workers in carbon-intensive industries
Proportion of working-age, employed residents in regionally-concentrated, carbon-intensive industries (as of 2016 Census)
Central Queensland has 23,200 workers in

concentrated, carbon-intensive industries (more
than 70 per cent in coal mining). They make up
Pilbara: 900,
mostly oil/gas extraction 15 per cent of the region’s workforce.
Darling Downs: 1,800,

mostly coal mining, oil/gas extraction,
and electricity generation
Collie: 1,200, Lithgow/Mudgee: 2,600,

mostly coal mining and Gunnedah: 1,400, mostly coal mining
mostly coal mining
electricity generation Hunter Valley/Newcastle: 16,300,
Whyalla: 800, mostly coal mining
mostly steel-making
Port Kembla/Wollongong: 4,400,
mostly coal mining and steel-making
Number of Share of workers
carbon workers in the region
20,000 – 20% Latrobe Valley: 2,100,
– 15% mostly coal-fired electricity generation
10,000 – 10% Portland: 500,
5,000 – 5% mostly aluminium smelting
1,000 – 3%
Notes: Worker numbers are determined from the population aged 18-65 in the 2016 Census. The ABS has divided Australia into more than 2,000 statistical areas known as ‘SA2s’. An
SA2 represents a community that interacts together socially and economically, usually containing 3,000 to 25,000 people. Each SA2 in Australia was classified according to whether it
contains regionally-concentrated carbon workers. SA2s sit within larger areas called SA3s, which sit within even larger areas called SA4s. Carbon workers in each SA2 were deemed
regionally-concentrated if at least 5 per cent of workers at the SA2 level – or at least 3 per cent at either the SA3 or SA4 level – worked in carbon-intensive industries. SA2s with fewer
than 100 carbon workers are not shown. Iron and steel smelting job estimates were not taken from the Census, but instead from Grattan estimates of the steel-making jobs present in
Whyalla and Port Kembla, calibrated to a benchmark of 500 jobs per Mt rated capacity based on IEA Environmental Projects (2013). This was done to exclude jobs in less carbon-intensive
fabrication activities that were captured within the iron and steel smelting category. A small number of aluminium smelting jobs near Bell Bay and George Town in Tasmania were excluded
given the availability of zero-emissions hydroelectricity in that state.
Source: Grattan analysis of ABS (2017).

The largest clusters are in the major coal mining regions of central
Queensland and the Hunter Valley, which are also home to power
stations and metal smelters. Smaller coal mining regions are located
Figure 1.5: Jobs in carbon-intensive industries pay well
in NSW – in the vicinity of Port Kembla, Lithgow, and Gunnedah – and
Median annual income by highest level of education, in areas with a high
to supply coal-fired power stations in Collie in WA and the Latrobe proportion of carbon jobs
Valley in Victoria. Port Kembla in NSW and Whyalla in SA are home
to emissions-intensive steelworks, and Portland in Victoria hosts an
aluminium smelter. Oil and gas workers are primarily concentrated in
the Pilbara in WA and the Darling Downs in Queensland.
This report focuses on Australia’s 55,000 geographically-concentrated

carbon workers, and the ‘carbon-intensive regions’ they live in. These
workers face more acute social and economic challenges than carbon
workers distributed across the rest of Australia. Metropolitan carbon
workers will have access to a much greater range of job opportunities.
And many of those are managers and professionals, and will more
easily transfer their skills to new jobs. If coal mining contracts, a mining
executive in Brisbane will have access to many more new opportunities
than a machinery operator in central Queensland.
Geographic concentration compounds the challenges facing each

individual worker. If geographically-concentrated industries shed
workers, those workers will face strong competition from their former Source: Grattan analysis of ABS (2017).
workmates to win a new job. And they would have to take a pay cut to
find a new job close to home – existing carbon jobs pay far more than
other jobs in the same location (Figure 1.5).
Given these challenges, it is understandable that people who live in

central Queensland, the Hunter Valley, Port Kembla, Whyalla, Collie
and Portland might feel differently about what constitutes Australia’s
national interest to those who live elsewhere. And it is not surprising
that communities with geographically-concentrated carbon workers
are more likely to oppose action on climate change, if it is seen to
threaten their jobs. The Labor Party took a more ambitious emissions

reduction target to the 2019 federal election – a target of 45 per cent secures our way of life – not just the way of life in inner Sydney, but
below 2005 levels, compared to the Coalition’s target of 26-to-28 per the way of life in Newcastle, in Roma, and in Townsville.33
cent.28 Communities with higher proportions of carbon workers appear
But the future of Australia’s carbon workers will not be determined in
to have rejected Labor’s policy platform (Figure 1.1 on page 5).29
Canberra. It will be determined in China, India, and Australia’s other
This is despite Labor’s attempts to assuage these workers’ fears with major Asia-Pacific trading partners. Three-quarters of coal mined in
a policy for a ‘just transition’.30 The policy aimed to assist communities Australia is exported.34 Australia has ridden a coal boom that was,
that will be affected by future closures of coal-fired power stations, by primarily, made in China – the number of people employed in coal
mandating pooled redundancy schemes, for example. It seems that mining has increased by about 70 per cent between 2006 and 2016.35
either the message was poorly delivered or voters did not trust Labor to If our major trading partners move away from coal, we will have to ride
manage such economic risks.31 the rollercoaster back down. It’s a similar story for natural gas. This
means that domestic emissions reduction policies can do little to extend
the long-term viability of carbon-intensive industries.
1.3 Balancing regional and national interests
The future of the coal industry is also highly uncertain. Scenarios
Australia’s climate conundrum is balancing the national interest – which
requires strong global action on climate change – with the legitimate developed by the International Energy Agency (IEA) indicate large
interests of regional communities and ‘carbon workers’ who feel differences in global coal demand, depending on whether countries
threatened by this action.32 The Minister for Energy and Emissions take the necessary actions to limit warming as agreed in the Paris
Reduction, Angus Taylor, is acutely aware of this challenge: Agreement (Figure 1.6 on the next page). This uncertainty is
compounded by how importing countries will respond to changing
Australia must do its bit to reduce emissions to address climate
market circumstances – for example, India’s coal and mines minister
change, and we are doing our bit. But we must do it in a way that
has openly discussed a move away from imported thermal coal.36
28. Slezak (2019). The future of gas depends on how cheaply emissions can be captured
29. There are many factors that affect how people vote in an election, and it is and permanently stored. In the absence of large-scale carbon capture
difficult to draw firm conclusions without surveying large numbers of voters or and storage, demand for gas needs to fall from the late 2020s to meet
performing statistical analysis that takes account of a range of factors. For a
detailed explanation of other factors influencing the 2019 election, see Cameron
the Paris Agreement.37
and McAllister (2019). We have not attempted to perform this analysis, because
this report does not aim to explain the results of the 2019 election, nor provide
Australian governments need to be honest with carbon workers:
strategic advice for parties in future elections. their attempts to protect carbon jobs from global forces will ultimately
30. Australian Labor Party (2019).
31. Cameron and McAllister (2019, p. 24). 33. Taylor (2020).
32. Of course, this is not the only balancing act in Australian climate policy; the 34. Cunningham et al (2019). For black coal, the proportion is closer to 85 per cent.
federal Coalition Government must also contend with the legacy of the climate 35. ABS (2017).
wars, political ideology, and pressures from other voters, businesses, and party 36. Singh (2020).
members: Wood (2020). 37. IEA (2019a, pp. 178–183).

fail. Leaders from both sides of politics in Australia have asserted

that we will and should continue to export carbon-intensive products
for decades, while also committing to the Paris Agreement.38 In
Figure 1.6: The future of coal is highly uncertain, leaving Australia very
reality the future – both for Australian carbon workers and for global
exposed to international trends
decarbonisation – is much less certain. IEA forecasts of global annual coal demand, Mtce
As well as honesty, Australia’s carbon workers would benefit from 7,000
realistic government strategies that can cope with a range of outcomes. Current Policies
scenario
Assuming that coal exports will continue indefinitely is a high-risk 6,000
strategy. A better approach is economic diversification, particularly
into new industries based on zero-emissions energy. Clean energy 5,000 Stated Policies
scenario
industries provide Australia with a valuable hedge in an uncertain
world. Our fossil fuel resources will be less valuable if the world moves 4,000
to reduce its emissions, but our renewable energy resources will be
more valuable. And those renewable energy resources, as important 3,000
Sustainable
Development scenario
as they are for Australia, could be even more important for the future of (Paris Agreement)
2,000
Australia’s carbon workers.
The remainder of this report examines Australia’s clean energy 1,000

opportunities, and what they mean for regions with large numbers of
jobs in carbon-intensive industries. Chapter 2 looks at the potential 0
ways Australia could exploit its renewable energy endowment. 2000 2005 2010 2015 2020 2025 2030 2035 2040
Chapter 3 examines whether these opportunities could be economically Notes: ‘Mtce’ is million tonnes of coal-equivalent. The ‘Stated Policies’ scenario takes
viable and support similar numbers of jobs in places that currently into account existing policy frameworks and announced policy intentions from countries
host carbon-intensive industries. And Chapter 4 provides targeted around the world. The ‘Sustainable Development’ scenario shows what level of action
is required to have a two-thirds chance of limiting global warming to 1.8°C, equivalent
recommendations for federal and state governments to ensure Australia to the Paris Agreement’s goal of ‘well-below’ 2°C.
is as well placed as possible to capture these opportunities. Source: IEA (2019a).
38. See, for example, Shanahan (2017), Albanese (2020), Parkinson (2018) and
Ludlow (2018).

2 Australia’s clean energy opportunity
Australia is a major fossil fuel exporter, and a global move to use Figure 2.1: Australia’s renewable energy resource endowment is both
low- or zero-emissions energy would present challenges. But it large and rare, giving us a comparative advantage
Locations with high-quality onshore wind and solar
would also present opportunities. Rapid reductions in the cost of
wind and solar power over the past decade have turned Australia’s
large, sunny, and windy land mass into a globally significant resource.
A decarbonising world will enable Australia to diversify beyond its North North
America Africa
existing carbon-intensive industries, by exporting renewable energy – 1m km2 10m km2 Gobi Desert
2m km2
either as electricity or hydrogen – or low-emissions energy-intensive
Middle East
commodities, such as metals, chemicals, and biofuels. 2.5m km2
Of Australia’s clean energy opportunities, the largest and most econom-

Good wind
ically viable appears to be using renewable hydrogen to produce ‘green’ Good coexisting Australia
wind and solar Argentina has 4m km2 of good
(near zero emissions) steel. With globally cost-competitive hydrogen, Good solar 1m km2 coexisting wind and solar
it will be cheaper to produce green steel here than to ship hydrogen
and iron ore to countries like Japan or Indonesia that have inferior Notes: Land higher than 3,000 metres is excluded because renewable energy
renewable resources. There are also attractive, but probably smaller, resources are harder to use when they are in mountainous terrain. High-quality
resources are defined to be areas with average wind power-density of at least 450
opportunities in producing biofuels, renewable ammonia, and hydrogen,
W/m2 and average daily solar photovoltaic potential of at least 4.5 kWh/kWp. North
and by exporting electricity via undersea cables. Africa includes the Horn of Africa.
Sources: Grattan analysis of Global Wind Atlas (2020), Global Solar Atlas (2020) and
These opportunities are not certain and will generally rely on either U.S. Geological Survey and National Geospatial-Intelligence Agency (2010).
international policies to reduce emissions, or customers being willing to
pay a ‘green premium’. But these opportunities are credible, particularly
if the world moves away from fossil fuels. supply.39 Energy storage solutions such as batteries and pumped hydro
systems contribute significantly to the cost of delivering relatively stable
electricity.
2.1 Australia’s renewable resources are large...
Many places in the world have strong wind – especially offshore – or But Australia’s combination of wind and solar resources is likely to
good solar radiation. But few places have as much good-quality solar give it an energy-cost advantage in a decarbonised world – combined
and onshore wind as Australia (Figure 2.1). solar and wind partly smooths the natural variations of each individual
resource, reducing storage requirements and lowering electricity costs.
Renewable technologies have become cheap to deploy over the past
decade, but it remains expensive to ‘firm’ the intermittent electricity 39. IRENA (2019, p. 12); and P. W. Graham et al (2018, p. 28).

This large resource alone does not guarantee Australia’s future as an oil and gas extraction today compared to 2006, because of the dramatic
energy powerhouse. Other factors contribute to the cost of renewable expansion of the LNG industry.42 Jobs in iron ore mining quadrupled
electricity: engineering, labour, and transport costs are each likely to be over the decade as Australia’s production tripled to supply growing
higher in Australia than many other countries. Economies of scale can demand in China.43
bring down costs, but Australia’s electricity market is relatively small in
terms of demand – supplying Australia’s domestic needs alone would Simply producing clean energy does not create many jobs, even if the
barely take advantage of the vast renewable resources or the possible energy is exported. It takes only 10-to-20 full-time staff to manage a
economies of scale. 400 MW wind farm, compared to hundreds of short-term jobs involved
in construction.44 Building enough renewable generation to meet
2.2 ... so we should look to export demand in Australia’s National Electricity Market, while reducing
emissions in line with the Paris 2°C target, would require thousands
Australia’s renewable resources cover millions of square kilometres. – but not tens of thousands – of ongoing wind and solar jobs.45 And on
Not all countries are so lucky. If the world acts decisively to limit average, these jobs don’t pay as well as current fossil-fuel electricity
carbon emissions, countries with poor renewable resources will have generation jobs.46
higher energy costs than Australia. They will look to import energy,
or energy-intensive commodities, from renewable-rich countries such
Many more jobs are likely to come from Australia using its energy cost
as Australia. In such a world, Australia’s trading partners will either
advantage to produce low-emissions, energy-intensive commodities for
be implementing policies that make emissions-intensive commodities
export. Manufacturing activities are typically more labour-intensive than
more expensive, or they will be willing to pay a ‘green premium’ for
renewable energy operation, and are likely to have conditions and pay
low-emissions commodities. In either case, Australia is likely to be
more like today’s jobs in smelting and coal power stations.
highly competitive in a range of low-emissions commodity markets.
Harnessing Australia’s renewable resources to serve an export market

could make this country an ‘energy superpower’. This idea has
attracted significant attention in recent years.40 42. ABS (2017); and Percival (2019).
43. Summerfield (2018).
Building an export industry can create many jobs. Australia’s existing 44. The 453 MW Cooper’s Gap wind farm in Queensland, for example, is expected
energy and mineral industries are evidence. Jobs in coal increased to create up to 20 ongoing jobs, and up to 200 short-term jobs during the peak of
construction: AGL (2019).
by 70 per cent between 2006 and 2016 as Australia ramped up its
45. Calculations based on ongoing jobs needed for an additional 21,000 MW of wind
exports.41 And more than twice as many Australians are employed in and 25,000 MW of solar, consistent with the ‘Step Change’ scenario of the draft
2020 Integrated System Plan: AEMO (2020); assuming 0.04 full-time equivalent
40. See, for example, Garnaut (2019), COAG Energy Council (2019, p. v) and (FTE) jobs per MW of wind capacity and 0.02 FTE jobs per MW of solar capacity
Ueckerdt et al (2019). for large-scale facilities (see Appendix A.2 on page 43). Smaller facilities will
41. ABS (2017). Coal exports rose significantly over this decade: Cunningham et al probably require a higher ratio of jobs.
(2019). 46. Grattan analysis of ABS (2017).

2.3 How Australia can export its renewable resources Projects of this kind may ultimately prove successful, but the risks and
market uncertainties suggest that direct undersea exports will be small
Australia can export its renewable resources in a number of ways. One
relative to Australia’s other potential clean energy opportunities.
is to build underwater electricity cables to neighbouring countries.
Another is to use renewable electricity to make hydrogen, and then
export the hydrogen as an ‘energy carrier’. A third way is to make 2.3.2 Hydrogen exports
energy-intensive commodities for export. In 2019 the COAG Energy Council developed a National Hydrogen
Strategy, led by Chief Scientist Alan Finkel.51 This strategy focused
heavily on the potential for Australia to export low-emissions hydrogen
2.3.1 Direct export by undersea cable
(Box 2) to meet the energy needs of Asian trading partners.
Undersea cables are a proven way to transport electricity over
several hundred kilometres.47 But for Australia to export electricity to Box 2: What is ‘low-emissions hydrogen’
large-electricity consuming neighbours such as Indonesia, we would
need cables that run underwater for several thousand kilometres. Low-emissions hydrogen can be produced in two main ways.
One is to use low-emissions electricity, most likely solar and wind
These exports would face significant technical and operational power, to power a machine called an ‘electrolyser’ that splits water
challenges. Customers and generators would need to be satisfied into its constituent parts – hydrogen and oxygen. This is known as
that the risk of prolonged outages could be managed.48 And very long ‘renewable’ or ‘green’ hydrogen.
undersea cables cost a lot.
The other is to gasify coal or ‘reform’ natural gas to produce a mix
of hydrogen and carbon dioxide, and then capture and store the
Despite this, two Australian projects have proposed large-scale, long-
carbon dioxide. This is sometimes called ‘blue’ hydrogen.
distance power transmission cables from northern Australia to other
countries. The Asian Renewable Energy Hub has proposed building
a cable from Eighty Mile Beach in WA’s Pilbara region to Indonesia.49
And the Sun Cable project plans to export solar power from Tennant If large-scale hydrogen exports came about, Australian renewable
Creek in the NT to Singapore via a 3,800 kilometre cable.50 energy would warm homes, fire cook-tops, feed industrial processes,
and power vehicles in other countries, just as Australia’s fossil fuel
exports do today.
47. In Australia, the Basslink cable has transferred power between Tasmania and But the market for large-scale hydrogen exports does not exist today,
Victoria since 2006. Similar cables are used in Europe, North America, Japan,
and its prospects are uncertain. Hydrogen is hard to transport – it
New Zealand, the Republic of Korea, China, and the Philippines.
48. For example, Basslink suffered a six-month outage between December 2015 and must either be liquefied by cooling to minus 253°C, or converted into
June 2016, causing significant problems for Tasmania’s energy supply. a chemical carrier such as ammonia. To make exports viable despite
49. NS Energy (2020). Recently it has prioritised producing hydrogen for export.
50. Sun Cable (2020). 51. COAG Energy Council (2019).

the high cost of transport, Australian hydrogen would need to be ‘Green steel’ (Box 3 on page 19) looks to be Australia’s largest
substantially cheaper than that made in other countries. low-emissions export opportunity. Steel is the largest of these seven
markets today by value, and this is likely to remain true in 2050, despite
The National Hydrogen Strategy acknowledges the uncertainty of increased recycling reducing demand for new ‘ore-based’ steel.
future growth in the hydrogen market. Modelling done in support of the
strategy considered a range of scenarios with very large differences in Australian-made green steel also has particularly good economic
the level of demand for hydrogen.52 prospects. As with any long-term analysis, the conclusions in this
report are uncertain, but they are robust across a range of assumptions
In future Australia may well successfully export hydrogen to energy- and scenarios. Australia’s abundant solar and wind resources are well
poor countries in Asia, but the uncertainties mean that it is unlikely to suited to making hydrogen (Section 2.4.1 on page 20), the key energy
be Australia’s most significant clean energy opportunity. input to making green steel from renewable energy. And Australia’s
lower-cost green hydrogen will make it a better place to produce green
2.3.3 Export of energy-intensive commodities steel than places like Japan or Indonesia (Section 2.4.3).
An alternative to exporting renewable electricity by cable or green No doubt Australia will confront technical (Section 2.5.1) and economic
hydrogen by ship is for Australia to use its renewable resources to (Section 2.5.2) challenges. But the analysis in this report suggests
make low-emissions, energy-intensive commodities for export. This can that the green steel opportunity is both large enough and economically
involve both attracting new industries to Australia, and maintaining or credible enough to justify policy action.
expanding existing energy-intensive industries while transitioning them
from fossil to renewable energy. Australia’s opportunities in other low-emissions commodities are either
smaller or more constrained. For example, making low-emissions
Table 2.1 on the following page summarises Australia’s prospects for cement depends more on capturing and storing carbon dioxide than
supplying seven energy-intensive, globally-traded commodities in a on the cost of renewable energy. Australia does not have a clear
future decarbonising world. The seven commodities are steel, cement, competitive advantage in carbon capture and storage, and the high cost
aviation fuel, shipping fuel, aluminium, ammonia, and alumina.53 of transporting this bulky commodity further limits Australia’s ability to
win a large share of the global cement market.
52. Deloitte (2019).
53. The steel market examined covers only new ‘ore-based’ steel. Recycled steel Australia’s ability to export biofuels for aviation or shipping is likely
is much less energy and emissions-intensive than ore-based steel (see Box 3 to be limited by the local availability of biomass.54 Australian biofuel
on page 19). Coal and liquefied natural gas are not considered because they production may well provide important economic opportunities for
cannot be easily decarbonised. Road transport fuels are not considered because a number of carbon regions (see Section 3.7 on page 32), but it is
the rapidly falling cost of batteries means that road transport will probably use
electricity or hydrogen, rather than a decarbonised liquid fuel. By contrast, planes’ unlikely to become globally significant.
and ships’ large fuel needs and very long travel distances make using electricity or
hydrogen difficult, and make the use of a decarbonised liquid fuel, such as biofuel 54. ETC (ibid, p. 121) indicates that Australia has far less biomass than many other
or ammonia (in the case of shipping), more likely: ETC (2018e, p. 19). parts of world, including Europe, Russia, and both North and South America.

Table 2.1: Steel is the largest clean manufacturing opportunity for Australia in a low-carbon world
Industry Current approach Share of Current Future (low-emissions) 2050 Key advantage Key disadvantage
global market approach market
emis- size size
sions (US$bn) (US$bn)
Steel (ore- Coal is used in a blast furnace 7.0% 660 Low-emissions hydrogen is used 590 Hydrogen Technology not
based only) to smelt iron ore to iron metal, to reduce iron ore to iron metal, complementary yet proven at
releasing CO2 . Iron metal is releasing water. Iron metal is to wind and solar commercial scale
refined to steel using oxygen refined to steel using electricity
Cement Limestone calcined (heated) to 4.5% 490 Calcination emissions captured 540 Limited carbon
produce clinker, releasing carbon and stored. Low-emissions heat storage resources
dioxide sources, such as hydrogen or in Australia
biomass
Aviation Fossil based fuel (primarily 1.9% 160 Biofuels made from non-food 230 Biofuels can be Biomass limits
kerosene) used as jet fuel biomass (’second generation’ used in existing
biofuels) engines
Shipping Fossil based fuel (primarily 2.2% 110 Second generation biofuels or 180 Biofuels can be Biomass limits/
heavier fuel oils) used as low-emissions ammonia used in existing difficult transition to
shipping fuel engines ammonia
Aluminium Electricity (of various sources) 1.4% 70 Low-emissions electricity used in 130 No technical Firming costs
used to smelt alumina (refined existing process challenges disadvantage
bauxite) into aluminium Australia
Alumina Fossil fuels are used for process 0.2% 60 Renewable heat sources replace 110 Australia has good Very small market
heat to refine bauxite to alumina fossil energy in the existing prospects for low-
process emissions heat
Ammonia Hydrogen is extracted from fossil 0.8% 60 Low-emissions hydrogen 100 Hydrogen Economics of clean
fuels (gas or coal) and combined replaces fossil-based hydrogen complementary production will
with nitrogen (from the air) in existing process to wind and solar need to improve
Notes: Market value is the price of a commodity multiplied by the volume sold, rounded to the nearest US$10 billion. Market value now and in 2050 are both estimated based on average
market prices over the period 2015 to 2019 inclusive, in 2019 US dollars. Market size in 2050 is indicative as prices will change over time. Steel market value is based on ore-based steel
only (i.e. it excludes recycling of scrap steel). To avoid double-counting, the value of the aluminium market excludes the value of the alumina input. Commodities are ordered by current
market size. Current production volumes are for 2018 and are based on: World Steel Association (2019), IATA (2019), IMO (2014), IEA (2019b) and USGS (2020a). 2050 production
volumes are based on: ETC (2018a), ETC (2018b), ETC (2018c), ETC (2018d) and European Aluminium (2019); extrapolation of long-run growth rates for ammonia using USGS (2020b).
Market prices based on: Steel Benchmarker (2019), Fearnleys (2020), US Energy Information Administration (2020) and USGS (2020a). Emissions based on: World Steel Association
(2018), ETC (2018b), IEA (2019c), World Aluminium (2020a), World Aluminium (2020b) and Giddey et al (2015). World emissions include all greenhouse gases, and all sources except land
use, land use change and forestry, using World Resources Institute (2018) and IEA (2019d).
Source: Grattan analysis based on the sources cited above.

Australia already exports aluminium, a particularly electricity-intensive

Box 3: What is ‘green steel’?
commodity. There is no technical barrier to Australia exporting
aluminium produced using solar and wind power, but these intermittent Steel is a refined form of iron metal. Making it produces large
renewable resources would need to be ‘firmed’ to provide a constant quantities of greenhouse gas emissions, primarily from the use
electricity supply. Firming electricity is generally more expensive than of coal as a ‘reductant’ – the carbon in coal reacts chemically with
firming hydrogen, and this means that Australia is likely to be better the oxygen in iron ore, leaving iron metal and carbon dioxide.
suited to producing green steel than green aluminium (Section 2.4.1
Steel is also made using natural gas instead of coal, in a process
on the next page). And the aluminium market is much smaller than the
known as ‘direct reduction’. This involves splitting natural gas
steel market.55
into a mix of carbon monoxide and hydrogen, and using these
Ammonia is an industrial chemical made of hydrogen and nitrogen. gases to reduce iron ore to iron metal. Gas-based direct reduction
Australia’s renewable resources can readily supply the green hydrogen roughly halves the carbon dioxide emitted per tonne of steel.
needed to make low-emissions ammonia. But ammonia does not But lower-emissions steel is still not ‘green steel’. For this
offer the opportunity green steel does. The market is much smaller you need a carbon-free reductant. The best candidate is
(Table 2.1 on the previous page) and the economics are more pure hydrogen – using it to make steel leaves only water as a
challenging – until hydrogen costs fall substantially, green ammonia byproduct.
will cost more relative to fossil-based production than green steel
(Section 2.4.2 on the following page). Ammonia could be adopted as Other very low emissions steel-making techniques are possible,
a low-emissions shipping fuel, significantly increasing the potential such as gas-based direct reduction with carbon capture and
market size, but other fuel options – such as the use of hydrogen or storage.
biofuels – make this quite uncertain.
It is relatively easy to make low-emissions recycled steel from
Finally, Australia has good prospects to remain a significant exporter of scrap. No reductant is required, and so the main source of
alumina, the refined chemical compound used to make aluminium. In emissions is the electricity used to melt the steel (in an ‘electric
future Australia could produce low-emissions alumina using hydrogen arc furnace’). Even using coal-based electricity, recycled steel
for high-temperature heat, and solar thermal energy or electricity for produces about one quarter of the emissions of new ‘ore-based’
lower-temperature heat.56 But the alumina market is much smaller steel made using coal.
than the steel market – Australia’s primary opportunity here is to retain
But steel scrap is not widely available. To tackle climate change,
existing jobs through a successful transition from fossil to renewable
the world will need large volumes of decarbonised ore-based steel
energy, rather than creating new jobs.
over coming decades. For this reason, this report focuses on low-
emissions ore-based steel-making.
55. Market value calculations in Table 2.1 on the preceding page net out the value of
the alumina input, to avoid double-counting. Appendix A.1 provides more detail on steel-making processes.
56. ARENA (2019).

2.4 Australia is well placed to make green steel

Box 4: It is cheaper to store hydrogen than electricity
2.4.1 Hydrogen storage balances intermittent wind and solar
CSIRO estimates that a hydrogen tank – the most expensive
Australia’s abundant, but intermittent, wind and solar resources are form of hydrogen storage – would cost about $1,100 per kilogram
better suited to making hydrogen-intensive commodities such as green of storage capacity, if built in 2025.a This is equivalent to about
steel than electricity-intensive commodities such as aluminium. $9,000 per gigajoule.
A separate CSIRO study estimates that a grid-scale battery would

The electrolysers that make hydrogen are flexible – they can turn on cost about $600 per kilowatt-hour of storage capacity in 2025.b
and off in response to the availability of renewable electricity. This, plus This is equivalent to more than $150,000 per gigajoule.
the relatively low cost of storing hydrogen (Box 4), means that hydrogen Other factors affect this calculation, such as conversion
can be produced when energy is abundant and stored for when it is efficiencies and the potential for future cost reductions. But
scarce. Hydrogen storage acts as a buffer between an intermittent the capital cost of hydrogen storage is lower by an order of
renewable energy supply and the continuous steel-making process. magnitude, and so these other factors will not affect the overall
conclusion.
Aluminium smelters cannot turn on and off in the same way as a. CSIRO (2018).
b. P. Graham et al (2019).
electrolysers – if they turn off for more than a few hours, the molten
aluminium freezes and damages the smelter. This means that batteries
or other forms of electricity storage must act as the buffer between
the intermittent wind and solar electricity and the continuous smelting
2.4.2 Green steel is more affordable than green ammonia in the
process. This is technically achievable, but more expensive than
near-term
hydrogen storage.
Australian-made green steel and green ammonia are likely to remain
more expensive than conventional fossil fuel-based production
These factors means that countries such as Australia with abundant processes for the foreseeable future. In the absence of a cost penalty
solar and wind resources will be better suited to making hydrogen- on emissions, purchasers will need to pay a ‘green premium’ to
intensive commodities such as green steel. Countries with low-cost purchase low-emissions steel or ammonia (Figure 2.2 on the following
hydroelectricity – which is not intermittent – will be better placed to page). This is true even at green hydrogen prices as low as US$1 per
make low-emissions aluminium. In the longer-term, as coal-based kilogram, which is consistent with some long-term price forecasts.57
aluminium production in China is phased out, new Australian aluminium Hydrogen prices of US$3 per kilogram, which is at the low-range of
production based on firmed wind and solar may become competitive.
But this will depend on how much new hydroelectricity can be produced
in places such as Russia and Africa. 57. BNEF (2020).

today’s cost of renewable hydrogen,58 give green premia of about 60

per cent for steel and over 100 per cent for ammonia.
At low hydrogen prices, the economics of Australian-made green steel Figure 2.2: Green steel is more cost-competitive than green ammonia in
and green ammonia are good – they are only 25 per cent and 13 per the near-term
cent more expensive than recent prices of fossil fuel based production ‘Green premium’ (additional cost of hydrogen-based product over cost of fossil
fuel-based product) for Australian-made green steel and green ammonia
respectively. Importantly, the nearer-term economics of green steel
120%
look better than for ammonia. Using green steel made with hydrogen
costing US$2 per kilogram would add only a tiny fraction to the cost
of a steel-intensive end product. A typical car would be about 1 per 100%
cent more expensive.59 Residential construction costs would probably
increase by less than 1 per cent.60 And even major rail and road tunnel 80%
infrastructure projects would see costs rise by no more than 0.5 per
cent.61
60%
The cost of reducing emissions by using green steel and green US$3/kg H2
ammonia are similar if hydrogen costs US$2 per kilogram, at about 40%
A$150 per tonne of carbon dioxide avoided. At US$1 per kilogram US$2/kg H2
hydrogen, abatement from ammonia is cheaper – A$30 per tonne
as opposed to A$90 for green steel. But at higher hydrogen costs, 20%
US$1/kg H2
abatement from green ammonia is more expensive than from green
steel. 62 0%
Steel Ammonia
58. IEA (2019a). Notes: The ‘green premium’ is calculated as the estimated cost of a low-emissions
59. Grattan analysis of ETC (2018a, p. 19) and World Steel Association (2020). commodity, divided by the market price of the emissions-intensive equivalent, less 100
60. Grattan analysis of Deloitte Access Economics (2018, pp. 38–47, 74–77). This per cent. Market prices are for the period 2015 to 2019 inclusive. Steel prices are for
study provided estimates of the value of steel inputs in double storey houses, export hot rolled coil. Ammonia prices are for the US Gulf market. Green steel and
townhouses, and low-rise apartments. Estimates for steel inputs into high-rise ammonia costs are based on production in eastern Australia, assuming either US$1,
residential apartment buildings were derived from information on the Gold Coast’s US$2, or US$3 per kilogram. US$3 per kilogram is at the low end of estimates of the
Q1 skyscraper, Australia’s tallest residential building: Skypoint (2020). cost of renewable hydrogen today: IEA (2019e). Green steel and ammonia costs are
61. Grattan analysis of major infrastructure projects including Sydney’s WestConnex, calculated based on various sources as detailed in Appendix A.2.
Sydney Metro, Melbourne Metro, and Inland Rail: WestConnex (2017), Transport
Sources: Steel Benchmarker (2019) and USGS (2020a).
for NSW (2012, Chapter 17, pp. 10, 16), Transport for NSW (2016, p. 882), AJM
Joint Venture (2016, pp. 47–49) and ARTC (2020).
62. These costs assume moving from integrated steel production to green steel,
and moving from the world average emissions intensity of ammonia production
(reflecting a mix of gas and coal based production) to green ammonia. Hydrogen

Green ammonia production does have an important short-term The cost of shipping hydrogen strongly favours making green steel –
advantage over green steel. Renewable hydrogen can be easily or at least the hydrogen-intensive direct reduction process – where the
blended with fossil-based hydrogen in existing ammonia plants, hydrogen is made. This is likely to be in renewable-rich Australia, rather
avoiding the need for expensive new capital equipment. This is also than in countries that have lower quality renewable energy resources
true of plants that use gas to make direct reduced iron, but these plants and limited land, such as Japan, Korea, Indonesia, Vietnam, and
support less than 10 per cent of global steel production.63 Thailand.69
Australia’s renewable resources could underpin the supply of steel to

2.4.3 Australia can produce green steel cheaper than many of its our Asian trading partners in three main ways (Figure 2.3 on the next
neighbours page). The first involves the direct reduction of iron ore to iron metal
Today Australia is a globally significant exporter of the two key inputs (sometimes called ‘direct reduced iron’), and the further refining and
to steel-making – we produce 38 per cent of the world’s iron ore64 and casting of that iron into a semi-finished steel product for export, all
18 per cent of the world’s coking coal.65 Yet we only produce 0.3 per occurring in Australia. The second involves Australia producing direct
cent of the world’s steel66 . This is because it is cheaper to ship these reduced iron for export, and the importing country refining the direct
key inputs to major manufacturing and steel consuming countries, such reduced iron into steel. The third involves Australian hydrogen70 being
as China, Japan, Korea, and India. Shipping typically adds less than shipped to the country needing the steel, which would then use the
10 per cent to the total cost of Australian coking coal delivered to major hydrogen to make steel.
Asian markets.67 The cost is too small to overcome the disadvantages
The economics of these three pathways vary depending on the country
of producing steel in Australia, such as high wages.
needing the steel (Table 2.2 on page 24). For relatively high-wage
But using hydrogen rather than coking coal turns the economics of countries such as Japan or Korea, it makes sense for Australia to
steel-making on its head. Shipping hydrogen is much more expensive export steel. But for lower-wage countries such as Indonesia, the
than for coking coal. Shipping to Asian markets could easily double the cost of steel made in Indonesia with Australian direct reduced iron is
cost of hydrogen relative to the cost of using it in Australia.68 essentially the same as the cost of Australian-made green steel. In
neither case does it make sense for Australia to export hydrogen to
make direct reduced iron in the steel-consuming country. And hydrogen
prices are often benchmarked in US dollars, as they are here, but abatement is
expressed in Australian dollars as it is more relevant for local policy.
63. World Steel Association (2019). 69. China, with its renewable energy resources and large industrial base, is unlikely
64. USGS (2020a). to need to import steel, green or otherwise. India’s future need to import green
65. Grattan analysis of IEA (2019f) and Australian Government (2020). steel is less clear: it has some good solar resources, but these may ultimately
66. World Steel Association (2019). be constrained by land availability and seasonal variability. For the purpose of
67. Grattan analysis of coal shipping charter rates and Australian Government (2020). this report, we focus on potential Australian green steel exports to north-east and
68. Grattan analysis of CSIRO (2018) indicates hydrogen shipping costs in the order south-east Asia only.
of US$1.50 per kg. Some studies – such as BNEF (2020) – forecast hydrogen 70. This could be in the form of liquefied hydrogen, or another hydrogen carrier such
costs of less than US$1 per kg. as ammonia.

Figure 2.3: Green steel export pathways
Iron ore Pelletising Electrolysis

mining Iron ore Renewable
pellets hydrogen
Water
Pathway 1: Produce steel Pathway 2: Produce direct Pathway 3: Export

locally, export semi- reduced iron locally, export the ore and hydrogen
finished steel products for to be refined to steel overseas for steel-
Direct overseas fabrication Direct making
reduction reduction
shaft furnace
Electric arc
furnace
Direct reduced DRI

iron (DRI) Direct reduction
+
Electric arc furnace Electric arc furnace
+ +
Casting Casting
Fabrication + +
Casting
Fabrication Fabrication
Notes: All three pathways require low-emissions electricity in each step. Iron ore mining and pelletising need not occur in Australia.
Source: Grattan analysis. Some icons sourced from flaticon.com (2020).

prices estimated by Bloomberg New Energy Finance71 indicate that

green steel made in Japan with local hydrogen will be more expensive
Table 2.2: Australia could export steel directly, or export direct reduced
than green steel made in Australia.
iron for further processing in low-wage countries
These results reflect the economic advantages of different countries. Dollars per tonne of semi-finished steel, landed in the steel-consuming
Australia’s lower-cost hydrogen, plus the high cost of hydrogen country
transport, give it a clear advantage in undertaking direct reduction. Steel- Japan Japan Japan Indonesia
But turning direct reduced iron into steel requires more labour and less consuming
energy than the direct reduction process, giving low-wage countries country
an advantage in that step of the process. Overall, the economics of Hydrogen price Grattan BNEF BNEF Grattan
these pathways are very similar for low-wage countries, and a mix of scenario 2030 2050
various approaches is likely – Australia could export some steel directly, Pathway 1: 937 874 797 929
and some direct reduced iron. It is also possible that Australian direct Australia exports
reduced iron could be turned into steel in a low-wage country, and steel
on-sold to a third country. This potential mix of approaches is reflected Pathway 2: 968 905 828 930
in the analysis in Chapter 3. Australia exports
DRI
Pathway 3: 1,099 - - 1,026
2.5 Technical and economic challenges remain Australia exports
hydrogen
2.5.1 Hydrogen direct reduction is not commercially proven
Steel-consuming - 1,010 876 -
Hydrogen-based direct reduction is not made commercially at present, country makes
but the technology is based on commercially-proven gas-based direct steel with local
reduction. The two major technology providers of gas-based direct hydrogen
reduction claim that their existing plant could run on pure hydrogen with Notes: Lowest-cost pathways for each hydrogen price scenario and consuming
little or no modification, though this has not happened in practice.72 country are shown in grey. In the Grattan hydrogen price scenario, hydrogen costs
are assumed to be US$2/kg hydrogen in Australia, and US$2/kg plus transport costs
Hydrogen direct reduction pilot plants – one using each of the two for Japan and Indonesia (based on Grattan analysis of CSIRO (2018)). BNEF is
main gas direct reduction technologies – are being built or planned in Bloomberg New Energy Finance: BNEF (2020). BNEF have 2030 hydrogen cost
Sweden and Germany.73 Technical challenges will arise in moving from estimates of US$1.48/kg and US$2.85/kg for renewable hydrogen produced in
Australia and Japan respectively, and 2050 costs of US$0.84/kg and US$1.74/kg
gas to hydrogen direct reduction, and these pilots will help to identify respectively. Steel cost analysis is based on various sources as outlined in
and address these challenges. Appendix A.2.
Sources: Grattan analysis based on the sources cited above.
71. Ibid.
72. Midrex (nd); and Energiron (nd[a]).
73. SSAB (2019); ArcelorMittal (2019); and Tenova HYL (2018).

The time required to address these challenges is uncertain, but is can be readily captured and stored. This is already happening on a
unlikely to delay a broader move to commercial-scale production commercial basis in the United Arab Emirates.76 Widespread adoption
given that time is also needed to improve the economics of hydrogen of this technology in places such as the US, Russia, and the Middle
production. For example, Swedish steel maker SSAB is targeting 2026 East could happen as part of a broader move to decarbonise the steel
for commercial-scale green steel production.74 industry, although this could also stretch the availability of low-cost
carbon dioxide storage reservoirs.
Australia will face some specific challenges in making the transition to
green steel. Pilbara iron ore is unusually hard, making it difficult to grind Integrated steel-making can also use CCS, but the multiple sources
and concentrate into pellets suitable for direct reduction. Australian iron of carbon dioxide within this process77 and their relatively low
ore miners will need to overcome these challenges to retain market concentration makes this technologically and economically difficult.
share if the world moves decisively towards direct reduction. But iron Carbon capture rates of about 50 per cent are likely to be feasible, but it
ore and pellets are globally traded products, and these challenges do is economically and technically challenging to achieve capture rates of
not damage the prospects of making green steel in Australia – more 80 per cent or higher.78
suitable ores are also available if needed, in Australia and in other
The uncertain interplay of competing technologies and production
countries.
locations means that Australia should be proactive, but flexible, in
positioning itself in these emerging markets. Chapter 4 outlines
2.5.2 Australia will face stiff competition
policies that governments at all levels can take to ensure Australia is
Even though it makes sense for an energy-rich country such as well-placed to capture these opportunities.
Australia to export direct reduced iron or green steel to its energy-poor
neighbours, Australia will not have it all its own way in these markets.
Australia will face stiff competition both from other renewable-rich
locations that can produce cost-competitive renewable hydrogen –
such as the US, Argentina, northern Africa, the Middle East, and China
(see Figure 2.1 above) – and locations that can produce affordable
low-emissions fossil hydrogen using natural gas and carbon storage
– such as the US, Russia, and the Middle East.75 These locations will 76. Emirates Steel (2020) and Global CCS Institute (2019). The carbon dioxide is
being used to increase oil production from declining fields, so called ‘enhanced oil
be competitive in green ammonia as well as green steel.
recovery’.
77. ‘Integrated’ steel-making is so called because it integrates a number of distinct
Low-emissions steel can also be produced using carbon capture and
processes. Each of these produces emissions. The processes include: a sinter
storage (CCS), without first producing hydrogen. Gas-based direct plant (which agglomerates iron ore fines into larger pieces suitable for the blast
reduction produces a relatively pure stream of carbon dioxide that furnace), a coke oven (reducing coking coal to coke), the blast furnace, the basic
oxygen furnace and, often, a power plant that burns exhaust gases from these
74. SSAB (2019). other processes. See Appendix A.1 for more detail.
75. IEA (2019e). 78. Fischedick et al (2014).

3 Carbon workers can help capture this opportunity
Carbon workers, and the port and electricity infrastructure that supports Figure 3.1: Carbon intensive regions are close to good-quality renewable
them, could play a crucial role in determining whether Australia resources
captures opportunities in emerging clean energy industries. This is
particularly true of building a world-scale green steel industry, which
would require tens of thousands of workers.
Labour and construction costs are far lower in eastern Australia than
in the Pilbara, so it would be cheaper to take the iron ore to the large Pilbara Bowen
pool of workers in central Queensland or the Hunter Valley than to try Moranbah
to attract workers from the south or east to the Pilbara. And if existing Gladstone
There’s abundant
coal jobs come under threat, building a green steel industry in central solar and wind Darling Downs
resources within
Queensland and the Hunter would provide the best hope for a smooth 400km of Whyalla
transition for the large numbers of coal workers that live there. It could Gunnedah
also help to resolve the tension between the interests of these regions Collie Hunter Valley
Lithgow
and the broader national interest on climate action. Port Kembla
Good wind
Other regions with carbon workers have their own opportunities. The Latrobe Valley
Good wind and solar Portland
Pilbara or Bunbury (near Collie) could provide a small-scale, but
Good solar
crucial, stepping stone to a global-scale green steel industry using
gas-based direct reduction. Port Kembla and Whyalla have good Notes: Notes on solar and wind quality.
prospects for moving from existing fossil fuel-based steel-making to Source: Grattan analysis of the Global Wind Atlas.
supply low-emissions steel to the domestic market. Portland, Collie,
and the Latrobe Valley could produce sustainable biofuels. And any
of these locations could feasibly produce low-emissions hydrogen or jobs are an accessible distance to good-quality wind and solar
ammonia for export. resources (Figure 3.1). In addition, the Latrobe Valley has abundant
brown coal and access to high-quality carbon storage reservoirs, which
3.1 Carbon-intensive regions have the resources and could support cost-competitive low-emissions hydrogen production.
infrastructure to host low-emissions industries
The port and electricity transmission infrastructure that supports exist-
Regions that currently host carbon-intensive industries are particularly ing carbon-intensive activities could also support new, low-emissions
well suited to hosting new low-emissions industries built on clean activities. Carbon-intensive regions such as central Queensland, the
energy. Almost all of the regions with concentrated carbon-intensive Hunter, the Pilbara, Whyalla, Portland and the Pilbara have good port

access. And all carbon-intensive regions have access to high-voltage

electricity network connections – these are particularly strong in the
Hunter and Latrobe valleys, near Lithgow, and at Portland. This is
Figure 3.2: Jobs in metal smelting require similar skills to jobs in coal
important both for importing electricity from the grid and for exporting
mining
power when variable renewable supply is excess to requirements. Share of workers
Community or personal
service workers
3.2 Carbon workers and their communities are crucial to
Sales workers
capturing clean energy opportunities
Clerical and
administrative workers
‘Hard’ infrastructure such as ports and grid connections are not enough
to capture clean energy opportunities – skilled people and supportive Professionals
communities are crucial. Carbon-intensive industries have built a
skilled workforce concentrated near key infrastructure. This workforce
can expand into new areas or, in the event that carbon-intensive Managers
industries come under pressure, be progressively redeployed. In this

Labourers
way, clean energy jobs offer workers and regions a good (though not
Machinery operators
certain) hedge against significant shifts away from carbon-intensive and drivers
industries. If the world decarbonises rapidly, opportunities in clean
energy industries should also emerge quickly; if the world is slow to Technicians and
trades workers
decarbonise, existing industries and jobs will continue for longer.
Coal Metal Other Non-
Importantly, the skills required in green steel are likely to be similar to mining smelting carbon job carbon job
those currently used in carbon-intensive metal smelting, and these Notes: Includes only full-time workers who live in regionally-concentrated carbon
communities. Metal smelting includes only iron, steel, and aluminium. Excludes
skills overlap broadly with those of coal workers. Figure 3.2 shows
workers who did not state or inadequately described their occupation.
that metal smelting and coal mining both require large numbers of
Source: Grattan analysis of ABS (2017).
technicians, trades workers, and machinery operators – in carbon
regions, about 80 per cent of coal mining jobs or 66 per cent of metals
smelting jobs need these skills.79 By contrast, these skills are used
in less than 30 per cent of jobs in other parts of the local economy.
No doubt some retraining will be required to redeploy coal workers in
an emerging green steel industry, but the prospects for this are much
better than in health, education, or tourism, for example.
79. These regions are shown in Figure 1.4.

New clean energy manufacturing jobs are also likely to pay better than
Figure 3.3: It is cheaper to move iron ore to existing workers than move
other jobs in the same regions. These jobs are likely to have similar pay workers to the iron ore
to existing jobs in metals manufacturing, which do not pay as well as Cost of continuously cast semi-finished steel landed in Indonesia, A$ per
existing coal mining jobs – full-time coal workers typically earned more tonne
than $2,000 per week in 2016, while workers in steel and aluminium 1,200
smelting were earning closer to $1,750 – but pay better than most other
8
jobs – median full-time incomes in these communities were less than
1,000 42
$1,200 in 2016.80 +86 Transport
16
Value Water
800 16
today
The importance of large, competitive labour markets is illustrated
by comparing the cost of producing green steel in the populous 583
eastern states with doing so close to the iron ore resource. The 600 Iron and
572 energy
Pilbara is the world’s largest iron ore province, but it is likely to be
more expensive to make steel there than in east coast locations such
400
as central Queensland or the Hunter Valley (Figure 3.3). Labour
Operations and 197
costs are significantly higher in the Pilbara than in other parts of
200 149 maintenance
Australia, and this causes higher construction and ongoing operations
and maintenance costs. Higher building materials costs and the Capital cost 211
151
need to cyclone-proof infrastructure exacerbate the Pilbara’s cost 0
disadvantage.81 Eastern Australia Pilbara
Notes: Cost estimates assume a hydrogen cost of US$2 per kilogram. Steel production
involves direct reduction using hydrogen, smelting in an electric arc furnace, and
continuous casting to a semi-finished tradable product (slab or billet). Labour costs
are assumed to be 70 per cent higher in the Pilbara than in eastern Australia, based
80. Values are in 2016 dollars, derived from responses to the Census: Grattan on regional differences in manufacturing wages: ABS (2017). Construction costs are
analysis of ABS (2017). Includes only workers in carbon regions as shown in assumed to be 40 per cent higher in the Pilbara than in eastern Australia based on a
Figure 1.4 on page 10. comparison of construction costs of liquefied natural gas projects: Songhurst (2018).
81. Grattan analysis of Songhurst (2018) indicates that LNG liquefaction plants Transport costs are estimated based on ship charter and fuel costs, and include a
completed in north-west Australia between 2014 and 2018 were about 40 premium to reflect the future use of zero-emissions ammonia in shipping. Shipping
per cent more expensive than those completed in Queensland over the same routes are to and from Dampier (the Pilbara), Newcastle (eastern Australia), and
period, controlling for differences in the type of gas processed. A key national Jakarta (Indonesia). Steel is assumed to be ‘back-hauled’, that is, transported back
construction cost guide estimates a 50 per cent Pilbara premium, across a range on otherwise empty iron ore ships to Dampier at minimal additional cost, but with an
of building types: Rawlinsons (2019). Research done for the Pilbara Development additional handling cost of US$3 per tonne, before further shipping to Jakarta.
Commission estimated an initial cost premium of 40 per cent, but anticipated Sources: Grattan analysis based on assumptions detailed in the Notes and in
that this would reduce to zero over multiple phases of a large renewable energy Appendix A.2.
project: Mella et al (2017).

3.3 Green steel could provide tens of thousands of jobs in

Table 3.1: Green steel could deliver tens of thousands of jobs
central Queensland and the Hunter Valley
Central Hunter Combined
A range of clean energy industries could plausibly provide hundreds, Queensland Valley
or even thousands, of new jobs in Australia. But very few can plausibly Ongoing jobs in region 15,000 10,000 25,000
provide tens of thousands of jobs, comparable to the number in the key
coal mining regions of central Queensland and the Hunter Valley. Direct reduced iron (DRI) output 60 35 95
(Mt per year)
Green steel is the exception. It could create the tens of thousands DRI exported (Mt per year) 30 17.5 47.5
of jobs needed to give hope for a smooth transition for the large
numbers of coal workers that live in those regions. In doing so, an Steel exported (Mt per year) 25 15 40
Australian green steel industry could help to resolve Australia’s climate
Output as share of 2050 global 4% 2.5% 6.5%
conundrum – the tension between the interests of carbon-intensive
steel market (including steel
regions and the broader national interest on climate action (see produced from exported DRI)
Chapter 1). Output as share of today’s 30% 20% 50%
integrated steel production by
Table 3.1 presents an illustrative green steel industry in central prospective trading partners
Queensland and the Hunter Valley. We have not modelled a scenario Annual value ($b) 40 25 65
that exactly replaces the 23,200 jobs for carbon workers in central
Queensland, or the 16,200 in the Hunter. But comparable scale – we Capital investment ($b) 115 80 195
have modelled a scenario involving 15,000 jobs in central Queensland
Renewable generation capacity 75 60 135
and 10,000 in the Hunter – is achievable. These jobs estimates are required (GW)
conservative, because they ignore construction jobs. Significant Renewable ongoing jobs (mostly 2,000 1,500 3,500
numbers of construction jobs would be created to build the required outside region)
steel plant, the electrolysers, and the renewable generators to power Water input (GL per year) 200 150 350
them. The 25,000 modelled jobs in what are presently carbon-intensive
regions do not include renewable ongoing jobs, which are likely to be Land required (share of state 0.45% 0.65% 0.5%
geographically dispersed and therefore in a range of different locations. area)
We have also excluded the jobs associated with transporting iron ore Notes: Assumes half of Australia’s DRI production is exported, and half is used to
and steel. produce steel in Australia. All jobs are ongoing full-time equivalent jobs, and exclude
construction jobs. Plant jobs include operation and maintenance of electrolysers for
hydrogen supply. Prospective trading partners are Japan, Korea, Indonesia, Malaysia,
This scenario has been calibrated to reflect the economics of green Taiwan, and Vietnam.
steel production in Australia. Half of the direct reduced iron produced in Sources: Grattan analysis based on assumptions in Appendix A.2.
Australia is assumed to be exported for further processing in low-wage

countries,82 and half to be exported as steel directly to the consuming of the Great Dividing Range in less populated, and sunnier, locations.
country. This assumption reflects that the cost of these two pathways Generation of this scale would probably require about 0.5 per cent
is very similar, and a mix of approaches is likely (Section 2.4.3 on of the area of Queensland and NSW – and much of this land could
page 22). continue to be used for grazing or other purposes. The amount of water
needed – about 350 gigalitres – is equivalent to three or four large
This scenario relies on Australia producing almost 7 per cent of the desalination plants.87 But even using this relatively expensive source of
world’s steel, a significant increase on the 0.3 per cent it produces water, water supply would be only 2 per cent of the total cost of green
today.83 But this market share is not unrealistic. Australia’s rich bauxite steel (Figure 3.3 on page 28).
and fossil fuel resources enable it to manufacture about 15 per cent
of the world’s alumina today.84 And Australia’s share of world bauxite
3.4 The Pilbara could export green direct reduced iron
production (27 per cent) is comparable to, but lower than, its share of
iron ore production (38 per cent). The economics of making green steel in the Pilbara do not look
attractive (Figure 3.3 on page 28) – the cost of labour is just too high.
Significant investment – almost $200 billion in today’s dollars – would Even if the construction and labour cost premia assumed in this
be required for Australia to produce almost 7 per cent of the world’s analysis were halved, green steel produced in the Pilbara would still
steel. This amount of investment is large, but is much less than the be more expensive that that produced on the east coast.
$350 billion invested in Australia by the oil and gas industry in the past
decade alone.85 In the same way, building a green steel industry would But the economics of producing green direct reduced iron are slightly
require significant investment by international steel companies. different, because it is must less labour-intensive (Section 2.4.3). If
the Pilbara managed to overcome its historic cost disadvantage, and
The economic prize is substantial. The annual output of a green steel halve its historic construction and labour cost premia, it could be a
industry of this scale would be about $65 billion in today’s dollars. This cost-effective location for exporting direct reduced iron for further
is only slightly smaller than the value of Australia’s export coal industry processing.
today.86
A green steel industry of this size would require substantial, but 3.5 Western Australia could provide an important stepping stone
deliverable, amounts of electricity and water. It is likely that much of to green steel
the required 135 GW of renewable generation would be located west Hydrogen-based direct reduction is not yet technologically proven at
commercial scale, and it is likely to be some time before the economics
82. We have modelled costs for Indonesia, but exporting to other countries, such as
of hydrogen production improve. But gas-based direct reduction could
Thailand, Vietnam, China or India is possible.
83. World Steel Association (2019). offer a stepping stone to green steel – it is commercially proven already,
84. USGS (2020a). and gas is cheaper than hydrogen. It produces only about half the
85. APPEA (2019).
86. In 2018-19, Australia exported coal worth almost $70 billion: Australian 87. Major urban desalination plants in Australia range in size from 45 to 150 GL per
Government (2020). year: Australian Water Association (nd).

emissions of steel made in an integrated steel mill.88 And emissions Table 3.2: Gas-based direct reduction is cheaper in Western Australian
can be reduced further by blending increasing amounts of renewable than on the east coast
hydrogen into the plant, meaning that emissions are not ‘locked in’ for Locations Assumptions Cost of
the life of the plant. cast
Gas-based Electric Gas Wages Construction
steel
direct arc price costs
Western Australia’s low-cost gas makes it an attractive location for gas- ($/t)
reduction furnace, ($/GJ)
based direct reduction. In fact, Bunbury (near Collie in south-western casting
WA) – which has both affordable labour and cheap gas – looks to be
Bunbury Eastern 5 Benchmark Benchmark 736
the cheapest place in Australia to produce direct reduced iron to feed
Australia
electric arc furnaces located in eastern Australia (Table 3.2).89 If the
Pilbara Eastern 4 Benchmark Benchmark 743
Pilbara was able to reduce its traditionally high labour and construction
Australia +35% +20%
costs, it may also prove lower-cost than eastern Australia.
Eastern Eastern 8 Benchmark Benchmark 756
A typical commercial scale gas-based direct reduction plant in the Australia Australia
Pilbara or Bunbury would create about 150 jobs. 90 Pilbara Eastern 4 Benchmark Benchmark 772
Australia +70% +40%
3.6 Port Kembla and Whyalla are likely to keep producing steel Note: Wages and construction costs are benchmarked to prices on the east coast of
for Australia Australia.
Sources: Grattan analysis based on assumptions in Appendix A.2, AEMO (2019) and
Australia’s steel primarily comes from integrated steel mills at Port DBP (2020).
Kembla (2.6 million tonnes per annum capacity) and Whyalla (1.2
million tonnes capacity). Scrap steel is recycled at smaller electric
arc furnaces in Sydney (Rooty Hill), Melbourne (Laverton), and Newcastle (Waratah). And some steel is imported, primarily in the form
of specialty steel products.
88. A world-class integrated steel mill produces about 2.1 tonnes of CO2 per tonne of
steel: IEA Environmental Projects (2013). The direct emissions from a gas-based
direct reduction plant are about 0.6 tonnes of CO2 per tonne of steel, based on The steelworks at Port Kembla and Whyalla do much more than
gas consumption in Energiron (nd[b]). Additional emissions from electricity inputs make crude steel. The steel made there is cast and further fabricated
are likely to be less than 0.5 tonnes of CO2 per tonne of steel, but depend on the into many steel products, with shapes and characteristics to suit
electricity source.
specific applications. The casting, rolling, coating, and other fabricating
89. Even if direct reduced iron is produced in Western Australia, it is likely that steel
will continue to be produced in eastern Australia given the existing casting and machinery is of high value, and is likely to remain in use to serve
fabricating plant located at Port Kembla and Whyalla, and the need to serve the domestic needs.
eastern Australian market.
90. A typical commercial scale plant can produce about 2 million tonnes per year.
Plants of this size typically have about 150 direct employees – see Table A.2 on These existing assets and the associated workers, as well as good
page 44 access to renewable energy resources – particularly at Whyalla

– give these sites good prospects for transitioning from traditional

emissions-intensive steel-making to low-emissions alternatives. Figure 3.4: Many carbon intensive regions have good biomass resources
Steel-making using direct reduction and electric arc furnaces require
slightly fewer jobs per unit of output than integrated steel mills. So –
Port Kembla and Whyalla would have fewer jobs if these facilities –
transitioned to cleaner technologies. But doing so would enable them –
to continue primary steel-making and sustain existing fabrication jobs. –
If these regions hosted direct reduction and electric arc plant of similar –
capacity to their existing furnaces, about 80 per cent of the existing iron Plausible jobs,
and steel jobs (including fabrication) would be retained. And about 70 midrange estimate
per cent of jobs would be retained if direct reduced iron was shipped to
these locations and processed in new electric arc furnaces.
3.7 Biofuels provide opportunities in other regions Collie could

support 400 to
700 biofuels jobs, and up
Several of Australia’s carbon-intensive regions are also rich in biomass to 1,200 by processing Latrobe Valley: 300 to 500,
biomass from the next and up to 1,000 by
resources that could be used to make sustainable biofuels, such closest district Portland: 400 to 900
processing biomass from
the next closest district
as for aviation. Potential sources of biomass include wastes from
existing agricultural and forestry industries, municipal solid waste,
and dedicated plantings of short-rotation tree crops such as mallee or Notes: Biomass estimates are based on CSIRO analysis (Crawford et al (2016)).
acacia. Grattan has adjusted the available amount of biomass to ensure the estimates are
conservative: native grass and crop stubble biomass is excluded because these
By 2050 the biomass available from these sources could support resources vary each season and year. Estimates of available bagasse and waste
biomass are halved to reflect that some of this resource is currently used for energy
a biofuel industry with about 10,000 jobs distributed nation-wide
or other purposes. Crawford et al (ibid) assume 10 per cent of cleared farmland is
(Figure 3.4). Of Australia’s carbon intensive regions, Collie and used for short rotation tree crops. Available biomass estimates are then used to
Portland have particularly good biomass resources, potentially estimate potential biofuels jobs assuming 1,000 full-time jobs per million tonnes of
sufficient to support about 500 jobs in each region. The Latrobe Valley, biofuel production capacity – derived from Grattan analysis of 15 commercial-scale
biorefineries (detailed in Appendix A.3). The range of estimates reflects the range of
the central Queensland sugar cane regions, and inland NSW also have
observed biomass-input-to-fuel-output ratios (broadly between 3 and 5 tonnes of input
significant biomass resources. biomass per tonne of biofuel). These estimates are inherently uncertain due to the
relatively small number of commercial biorefineries in operation today, and the variety
Australia’s biomass resources are unlikely to be large enough to of feedstocks and refining processes used.
support large-scale biofuel exports, but they can provide a significant Sources: Crawford et al (ibid), and various sources as summarised in Appendix A.3.
share of our own needs. Australia is likely to have enough waste
biomass to supply all of its domestic aviation fuel requirements in

2050.91 Additional biomass resources, such as dedicated plantings of

short-rotation tree crops, would be needed to supply biofuels to other
markets, such as international aviation or shipping fuels, or to make
bio-plastics.
3.8 Green ammonia could also provide thousands of jobs

Australia could capture opportunities in green ammonia, but they are
likely to be smaller than in green steel – particularly in terms of jobs.
If Australia was to produce 6.5 per cent of the world’s ammonia using
electrolysed hydrogen by 2050 – that is, the same share as assumed
for steel – this would create up to 5,000 ongoing jobs.92 These jobs
could be located anywhere in Australia that has cost-competitive
renewable energy to make green hydrogen, good port access and
sufficient land and labour.
The potential for green ammonia exports could be much greater if

the global shipping industry adopted ammonia as a fuel. This is a
plausible in the long term, but in the interim shipping may use biofuels
– particularly because biofuels can be used in existing engines without
modification.93 If global shipping moved exclusively to ammonia and
Australia won a 6.5 per cent market share, this could create about
another additional 15,000 ongoing jobs.94
91. Biomass estimates are based on CSIRO analysis (Crawford et al (2016)),
excluding crop stubble and native grasses. Aviation fuel requirements in 2050 are
estimated based on the 2020 to 2030 growth rate in domestic aviation emissions
assumed in Department of Industry, Science Energy and Resources (2019).
Under international emissions accounting rules, Australia’s emissions projections
exclude flights entering or leaving Australia.
92. Production of ammonia for chemical use only (that is, ignoring the production
of ammonia as a hydrogen carrier). Estimate based on the job intensity of a
benchmark ammonia plant – see Appendix A.2.
93. ETC (2018d).
94. Estimate based on the energy density of ammonia, the size of shipping fuel
market calculated in Table 2.1, and the job intensity of ammonia production as
detailed in Appendix A.2.

4 Governments should plan for this future
Australia’s clean energy opportunities are large, but they are far from and create new regional industries – benefits that may well justify the
certain. Governments cannot single-handedly drive the creation of new cost of such a scheme to air travellers.
global-scale industries, nor invest the hundreds of billions of dollars
required. But they should implement policies that plan for, and can
facilitate, this future. 4.1 Australia should position itself to capture emerging
opportunities
A two-phase approach is needed. First, a preparation phase over the
There is no guarantee that Australia will ultimately capture almost 7
next decade, in which Australian governments take targeted policy
per cent of a decarbonised global steel industry, or that it will create
action to give us our best chance of capturing opportunities that may
25,000 new jobs in the coal regions of Queensland and NSW. The
emerge later on. Second, an expansion phase, which is both less
supply of and demand for green commodities, and the pace of global
certain and less dependent on Australian policy, because it will be
decarbonisation, are inherently uncertain.
driven by global markets and policies, and by private investment.
But uncertainty is not an excuse for inaction. Even allowing for
The federal government should help Australian steel-making move
uncertainty, Grattan’s scenario analysis indicates that the potential
to lower-emissions technologies over the next decade. Government
opportunities are sufficiently large to justify targeted measures today.
funding for a steel ‘flagship’ project would underpin investment in
These measures should position Australia to build the capabilities
lower-emissions technologies and build the skills and capabilities
needed to capture emerging opportunities, if the key economic and
Australia will need to create an export-scale green steel industry in the
policy factors move in our favour. Targeted actions today could have
expansion phase.
big rewards tomorrow.
Governments should continue their efforts to build capability in making
Actions beyond those canvassed in this report may be required
and storing hydrogen, consistent with the National Hydrogen Strategy.
in future. These can be calibrated in due course, using the latest
In particular, governments should fund pre-commercial geotechnical
information. We will know a lot more about the prospects of both green
studies to better understand the potential for hydrogen storage in salt
and carbon-intensive industries in 2025 than we do today, and a lot
caverns. And governments can help workers capture new opportunities
more again in 2030. This adaptive approach is consistent with that
by supporting their skills development and retraining.
advocated by the COAG Energy Council for hydrogen exports in its
National Hydrogen Strategy.95
Policy can also help create a new biofuel industry. The federal
government should examine the costs and benefits of requiring that a
share of domestic aviation fuel be supplied from sustainably produced
biofuels. This would reduce emissions, build local technical capability, 95. COAG Energy Council (2019).

4.2 The federal government should build capability in making

Box 5: A steel ‘flagships’ project
low-emissions products
A steel ‘flagships’ project would involve incumbent and potential
A market for green commodities is emerging, particularly among car
new steel suppliers seeking government funding to invest in low-
manufacturers concerned about their supply chain emissions.96 But this
emissions steel technologies not currently used in Australia.
market is new and demand is uncertain. Low-emissions commodities
are generally more expensive than their emissions-intensive equivalent. It should not be limited to green steel using hydrogen-based direct
It would be risky to build a commercial-scale low-emissions plant just to reduction, because this approach is too expensive today, and not
satisfy the green premium market. yet proven at commercial scale. It should include low-emissions
technologies such as gas-based direct reduction, which uses
Australia should use the next decade to create a foothold in the similar technology to hydrogen-based direct reduction and so
emerging green steel market. The best way to do this is through direct would build directly relevant skills and knowledge. Blending
government funding to support private investment in higher-cost, but increasing amounts of renewable hydrogen allows emissions to
lower-emissions, steel production – a steel ‘flagships’ project (Box 5). be reduced over time, and further builds skills relevant to making
This would help build the skills and capability needed in a future green steel.
export-oriented expansion phase.
Government funding can help draw out innovative proposals. This
Conditions in Australia’s steel market mean that direct government could include trial blending of gas with renewable hydrogen, to
funding is likely to be superior to other, more complicated, policy build capability in hydrogen production and knowledge of the
approaches. One alternative is a low-emissions steel procurement chemical processes involved. Knowledge-sharing and skills
mandate, similar to the Renewable Energy Target that requires development, such as through hosting research students, could
electricity retailers to buy a growing share of their power from justify additional funding.
renewable sources. That approach has worked well, but the electricity
market has many buyers and sellers. By contrast, the Australian steel This is broadly similar to the approach the federal government
market is dominated by just two main producers, and a market-based took to develop experience with large-scale solar power
procurement mandate could result in one of those producers generation through the Solar Flagships policy, and the subsequent
dominating the low-emissions steel market. This is compounded by the Large-scale Solar Program. Under these programs, significant
large scale needed for economic steel production – the ‘lumpy’ nature government funding brought forward investment in mature but
of investment would make it unlikely that both incumbent producers high-cost technologies, to bring down those costs and improve
could justify separate investments in low-emissions steel. The ease local knowledge. Both programs required proponents to produce
with which steel can be imported and exported adds to the complexity or fund knowledge-sharing reports to support this objective.a
of using this approach for steel. a. Department of Resources, Energy and Tourism (2011); and ARENA (2017).
96. Lord (2019).

The government funding required to support a low-emissions steel costs involved for air travellers, how those costs might reduce over time,
project is not small. Government funding in the order of $500 million is and the rate at which technologies proven overseas could be deployed
likely to be necessary to underpin a multi-billion dollar modernisation in Australia. Costs should be further managed by gradually increasing
of Australia’s steel industry.97 Though the investment is large, it the share of biofuel required over time – enabling manufacturers to
would also support significant emissions reductions compared to identify the lowest-cost supply options and adopt the latest technology.
Australia’s existing integrated steelworks. Indicatively the cost would
be $20 to $30 per tonne of carbon dioxide avoided – higher than This policy is similar to one being considered in Europe.102 Australia
the cost of abatement purchased through the Emissions Reduction will be well placed to learn from that process – in terms of both policy
Fund,98 but lower than typical recent prices for emissions permits in design and cost impacts. Care will be needed to ensure that the
the EU emissions trading scheme.99 . It is an affordable step towards policy doesn’t interact with differing fuel tax treatments in a way that
decarbonising Australia’s heavy industry. creates perverse or unexpected outcomes. And Australia will need
to ensure that fuels supported under this policy comply with existing
The federal government should consider a procurement mandate for internationally-approved technical standards for alternative aviation
sustainable aviation fuels. Biofuel plants can be built at a smaller scale, fuels.103
allowing a range of producers to create a competitive market for these
fuels. A procurement mandate could reduce emissions and create Green ammonia offers a substantial market opportunity for Australia
significant regional economic opportunities – it could bring hundreds of (Section 3.8 on page 33). But the case for specific policy action on
jobs to places such as Collie, Portland, the Latrobe Valley, and central green ammonia is not as strong as for green steel or biofuels. Australia
Queensland (Figure 3.4 on page 32). has an established ammonia industry and there are no major technical
The cost of a biofuel purchase scheme would depend materially on barriers to blending renewable hydrogen into existing plants. Provided
Australian production costs and the mandated share of biofuel use. Australia continues efforts to bring down the local cost of renewable
Internationally, biofuels are about two-to-three times the price of hydrogen – such as through trials to build capability and efforts to
fossil-based jet fuel,100 and this means that replacing 10 per cent of jet reduce the cost of storage (Section 4.3 on the following page) – it will
fuel with biofuel would increase domestic ticket prices by about 2-to-4 be well-placed to produce green ammonia as demand for this product
per cent.101 Further investigation is warranted to better understand the matures and the costs of hydrogen reduce.
97. Grattan analysis based on assumptions in Appendix A.2.

98. Clean Energy Regulator (2020).
99. Intercontinental Exchange (2020). doubling the price of fuel would increase ticket prices by about 20 per cent for a
100.ETC (2018c). The ETC considers that this will decline over time. Biofuel costs will 100 per cent biofuel mandate, or about 2 per cent for each 10 per cent mandated.
vary depending on feedstock availability and cost, and the conversion technology 102.European Commission (2020).
used. The biofuel cost premium will also be higher at times of low crude oil prices, 103.ASTM International approves jet fuel standards for commercial use, including
as have emerged in 2020. specific types of sustainable aviation fuel: ASTM International (2018). It recently
101.Grattan analysis of Qantas (2019) indicates that fuel makes up about 20 per cent approved a sixth production process for making commercial sustainable aviation
of the cost of a domestic airline ticket (higher for international). It follows that fuel: CAAFI (2020).

4.3 Efforts to bring down hydrogen costs must continue 4.4 State governments have a crucial facilitating role
Australia and other countries have recognised renewable hydrogen’s Land-use planning will be an important and complex element
potential as a low-emissions fuel and industrial feedstock. The cost of accommodating new global-scale manufacturing industries.
of electrolysers will come down as their use increases, through State governments have a crucial role here, as they have primary
economies of scale in production and through technological responsibility for approving the conditions of major industrial projects.
improvements. Finding suitable industrial land, and allaying local community concerns,
is often difficult. The regions and communities that currently host
Australian governments, through the COAG Energy Council’s National carbon-intensive industries are generally best placed to balance these
Hydrogen Strategy, have signalled support for pilot projects using pressures, but strategic long-term government planning will help.
renewable hydrogen. These will build local skills and familiarity with
installing and using this technology, as well as with commercial aspects Existing industrial and mining sites are likely to be very good locations
of their operation. The federal government is providing funding in this for future clean energy industries. They have infrastructure connec-
area.104 And the federal Energy Minister, Angus Taylor, has stated his tions, such as power, water, rail, and road, and buffer zones to manage
commitment to drive hydrogen costs below $2 per kilogram.105 noise, dust, and visual impacts on neighbours. State governments
regulate the rehabilitation of mines and the decommissioning of
Low-cost hydrogen storage is important to producing cost-competitive industrial sites, and so have a crucial role in ensuring smooth transition
and continuous hydrogen supply using variable renewable energy of sites from one use to another.
from solar and wind. Salt cavern storage is likely to be the lowest-cost
State and federal governments can help workers retrain to capture
form of storage, and Australia is behind countries such as the US and
new opportunities. Given the size of the potential retraining task,
Germany in building this kind of storage.106
the two tiers of government should share the funding burden. State
Australia does have prospective underground salt formations that could governments should lead efforts to identify the skills needed by new
be suitable for storage – including in southern Queensland107 – but industries. This assistance should reassure potential investors that
not a lot is known about them. Governments could position Australia the skills they need will be available. State governments should also
well for future hydrogen use, including for green steel, by funding and work with employers and unions to assist with workforce continuity as
publishing pre-commercial geotechnical studies of these potentially Australia transitions from old activities to new.
important resources, as governments do for petroleum resources. Local governments and local communities also have an important role.
Many people in carbon-intensive regions recognise the challenges
facing their existing industries, and are looking to diversify their local
104. ARENA (2020).
economies. For example, the Hunter region in NSW has developed an
105. Taylor (2020).
106. A salt cavern is ‘built’ by pumping hot water into natural underground salt economic diversification plan involving state and local governments,108
formations to dissolve and remove the salt, leaving a structurally sound void.
107. Feitz et al (2019, p. 33). 108. NSW Government and Hunter Joint Organisation of Councils (2018).

and the Victorian Government has established the Latrobe Valley

Authority to help that region diversify beyond coal-fired electricity
generation.109 The Queensland Government has also created a Just
Transitions unit to help local communities manage their transition to
new industries.110 Local community support is crucial if new industries
are to grow, so close engagement with local government will be
important.
109. Latrobe Valley Authority (2020).

110. Queensland Government (2020).

Appendix A: Technical notes, assumptions, and benchmarking
A.1 Green manufacturing: technical appendix The second method is called ‘direct reduction’ (see Figure A.2 on
page 41). Iron ore is heated but not melted in a shaft furnace with
A.1.1 Pathways to steel
‘reductant gases’, typically a blend of carbon monoxide and hydrogen.
Iron ore – the mineral dug out of the ground – has to be processed These are usually made by reacting natural gas and steam in a
before it becomes the steel we see around us every day. There are two steam methane reformer, but can also be made by gasifying coal.
fundamental steps: ironmaking and steelmaking. Ironmaking means The reductant gases play the role that coke plays in a blast furnace,
taking the iron ore, stripping out the oxygen atoms in the ore, and stripping oxygen from the ore. Carbon monoxide becomes carbon
producing iron metal – this is also called ‘smelting’. In steelmaking, the dioxide, and hydrogen becomes water.
chemical composition of the metal is changed to give it the properties
The iron from this process – ‘direct reduced iron’ – contains a lot of
of steel; this includes adding or removing a small amount of carbon.
impurities, and so needs to be melted down in an electric arc furnace.
There are two main methods of producing iron from iron ore. The Scrap steel can also be recycled in an electric arc furnace, and is often
first involves a blast furnace: in this process pieces of iron ore111 are blended in with the direct reduced iron.
stripped of oxygen (a process called ‘reduction’) and then melted in
Both methods produce carbon dioxide at various points in the process.
the furnace. Heated air is blown into the base of the furnace, and
To make low-emissions steel, either the carbon dioxide needs to
coke (lumps of mostly carbon made from metallurgical coal in coke
be captured and permanently stored, or the process needs to use
ovens) is burnt there to produce heat and make the gases necessary
renewable inputs. Renewable coke and natural gas from biomass are
for reduction to occur. The gas exiting the furnace top is a mixture of
not economic; renewable hydrogen is more prospective. That leaves
carbon dioxide and carbon monoxide, with a small amount of hydrogen.
four major ways of producing low-emissions steel:
This is used as a fuel in subsequent steel reheating and shaping in the
steelworks. Blast furnaces are often part of an ‘integrated’ steelmaking 1. Using carbon-capture and storage (CCS) in an integrated
process (see Figure A.1 on the next page). This means that the iron steelmaking process;
metal from the blast furnace is then transported to another furnace –
the basic oxygen furnace – for steelmaking. Here, oxygen is blown onto 2. Using CCS in a gas-based direct reduction process;
the molten iron (plus some steel scrap) to refine the iron and produce
3. Using renewable hydrogen in a direct reduction process;112
low-carbon steel. Again, carbon dioxide is produced in the process.
This combined method is the most common way steel is produced 4. Or using hydrogen derived from fossil fuels in a direct reduction
today. process, capturing the carbon dioxide emitted in the hydrogen
production step.
111. The pieces of iron ore are typically a blend of lump ore (larger pieces from the
mine), pellets (hard spheres of agglomerated iron ore dust, known as fines), and 112. A small amount of natural gas is also needed to help maintain the temperature in
sinter (irregular lumps of agglomerated iron ore fines). the shaft. This could be replaced with biogas to further reduce emissions.

Figure A.1: Integrated steelmaking using the blast furnace
Iron ore Iron ore pellets Coke oven

Metallurgical coal
mining Fine iron
ore (fines)
Pelletising Coke
Iron ore sinter
CO2 (and some
carbon monoxide) Coke oven gases
Lump Sintering
iron ore
Blast furnace
CO2 and
waste gases Hot air
Molten Oxygen
Scrap steel iron
CO2 and
waste gases
Basic
Crude steel oxygen
furnace
Secondary
metallurgical
treatment
Refined steel
Casting Fabrication
Note: Scrap steel is added to the basic oxygen furnace to control the temperature.

Figure A.2: Direct reduction pathways using either renewable hydrogen or natural gas
Iron ore Lump iron ore Electrolysis

mining
Renewable pathway:
H2O (and very little CO2)
Fine iron
Gas pathway:
ore (fines) Water
H2O + CO2
Pelletising Iron ore pellets

Hydrogen
CO2 and
waste gases Small amount
Direct of natural gas
reduction Reductant
shaft furnace gases Renewable pathway
Electric arc
furnace Gas pathway
Scrap steel
Carbon monoxide +
Carbon hydrogen
(for steel properties)
Steam Natural gas

Refined Crude
steel methane
Casting and steel Secondary reformer
Direct reduced Water
fabrication metallurgical iron (DRI)
treatment
Note: Low-emissions pathways also require that low-emissions electricity be used in each step. Gasified coal can be used in place of natural gas.

A.1.2 Pathways to ammonia

Ammonia is made of nitrogen and hydrogen. The elements are
combined in the Haber-Bosch process to produce liquid ammonia. Figure A.3: Renewable and non-renewable pathways to ammonia
synthesis
Nitrogen is abundant – more than three-quarters of air is nitrogen,
and so it simply needs to be separated from the other gases in the Electrolysis
air. Hydrogen, on the other hand, needs to be chemically produced. Nitrogen
Currently, the most common way of producing hydrogen is combining (separated from air)
steam and natural gas (methane) in a steam methane reformer Renewable
Water electricity
(Figure A.3). This produces a blend of hydrogen and carbon monoxide.
Hydrogen
Using the water-gas shift reaction, more steam can be converted to
hydrogen, and the carbon monoxide is converted to carbon dioxide. Renewable pathway
To make low-emissions ammonia, the hydrogen needs to be produced Gas pathway

Hydrogen
in a low-emissions way. The two main options are ‘green’ or ‘blue’. The Haber-Bosch
green route involves splitting water into hydrogen and oxygen using process
an electrolyser, powered by low-emissions electricity (in Australia, Water-gas Carbon monoxide +
this is more likely to be renewable electricity than nuclear or fossil-fuel shift hydrogen
generation with CCS). The blue route is the same as today’s method –
a fossil fuel such as natural gas is converted into hydrogen and carbon Steam methane Natural gas
Ammonia CO2 reformer Water
dioxide – but the carbon dioxide is captured and stored permanently.113
Sources: Grattan analysis. Some icons sourced from flaticon.com (2020).
113. Using a biomass source instead of a fossil fuel would be carbon-neutral, but is
unlikely to be as economic.

A.2 Estimating green commodity production costs
Table A.1: Core economic assumptions

Parameter Assumption Notes
Return on capital 10% per annum Pre-tax return
Economic life 25 years Not equivalent to physical plant life
Plant load factor 90% To adjust rated capacity to output
Long run FX 0.7 AUD/USD Slightly lower than five year average
of 0.74; historic conversions done
using historic rates: Investing.com
(2020); forward looking conversions
done using long-run rate

Table A.2: Steel cost assumptions – steel plant

Cost element Unit Assumption Sources and notes
DRI
Iron (pellet) input tonne iron ore per tonne DRI 1.4 Energiron (2017)
Natural gas input GJ natural gas per tonne DRI (gas-based) 9.9 Energiron (ibid)
GJ natural gas per tonne DRI (hydrogen-based) 1.9 Midrex (2017)
Hydrogen input kg H2 per tonne DRI (hydrogen-based) 72 Midrex (ibid)
Water input kL per tonne DRI (gas based) 1.3 Energiron (2017)
kL per tonne DRI (hydrogen based) 2.2 Includes electrolysis water of 15 L per kg H2
Capital cost USD/Mt rated DRI capacity (gas based) 428 Benchmarked based on Nucor (2013), voestalpine
(2017a) and Cleveland Cliffs (2017)
USD/Mt rated DRI capacity (hydrogen based) 396 10% reduction assumed for Midrex plant as gas reformer
not required
Labour input FTE/Mt rated DRI capacity (gas based) 78 Benchmarked based on Nucor (2013), voestalpine
(2017b) and Cleveland Cliffs (2017)
FTE/Mt rated DRI capacity (hydrogen based) 73 10% reduction assumed for Midrex plant as gas reformer
not required
DRI input to steelmaking tonne DRI per tonne steel 1.17 Energiron (2017)
Electric arc furnace

Electricity input MWh per tonne of steel (hot DRI feed) 0.43 Energiron (ibid), with Grattan adjustment to reflect carbon
content of DRI
Electricity input MWh per tonne of steel (cold DRI feed) 0.52 Energiron (ibid)
Water input kL per tonne of steel 1.6 Colla et al (2017)
Capital cost USD/Mt rated steel capacity 144 Benchmarked based on Steel on the Net (2018), US Steel
(2019) and Coyne (2015)
Labour input FTE/MT rated steel capacity 167 Grattan calculation based on Steel on the Net (2020a)
Crude steel input to cast steel tonne crude steel to cast steel 1.02
IEA Environmental Projects (2013), Figure E-2
Casting and hot rolling Casting Hot rolling
Electricity input MWh per tonne of steel 0.01 0.11 IEA Environmental Projects (ibid), Table C-3
Water input kL per tonne of steel 1.0 2.2 IEA Environmental Projects (ibid), Table D-12
Capital cost USD/Mt rated steel capacity 54 123 IEA Environmental Projects (ibid), Table E-4
Labour input FTE/MT rated steel capacity 100 120 Grattan calculations based on IEA Environmental Projects
(ibid), Table D-6

Table A.3: Steel cost assumptions – input costs

Parameter Units Eastern Pilbara Pilbara Bunbury Japan Indo- Sources
Aust- (low nesia
ralia cost)
Iron ore pellets AUD/t input 152 152 152 152 152 152 Pellet price calculated based on a fines price, adjusted to pellet
iron concentration, plus a pellet premium. Fines price from Steel on
the Net (2020b); pellet premium of US$37 per tonne from Ferrexpo
(2017).
Natural gas AUD/GJ 8 4 4 5 8 4 Eastern Australian gas prices based on lifecycle costs published
in ACCC (2018, p. 22), with an allowance for transport and mark-
up. Pilbara gas prices based on AEMO (2019, p. 62). Bunbury gas
prices are Pilbara gas prices plus transport costs from DBP (2020).
For simplicity, Indonesia assumed to have Pilbara gas prices; Japan
assumed to have Eastern Australian gas prices.
Purchased AUD/MWh 107 143 143 143 179 179 Wholesale costs plus a US$25/MWh retail and transmission cost
electricity component. Eastern Australian prices based on Blakers et al
(2017a). Japan assumed to have the same electricity price as
Indonesia; both based on Wang et al (2018). Pilbara electricity
prices based on a study of south-west WA: Blakers et al (2017b)
Labour AUD/ hour 57 97 77 57 44 7 Australian and Japanese wages are based on national wages from
OECD (2018), increased by 30% to reflect the level of wages in
Australia’s steel industry based on ABS (2017). Indonesian wages
based on Krakatau Steel (2019) and PT Gunung Raja Paksi Tbk
(2019)
Capital cost % of 130% 182% 156% 130% 100% 100% Locational cost factors based on LNG plants built between 2014
(locational benchmark and 2018, cited in Songhurst (2018).
factors) cost
Maintenance % of 131% 203% 167% 131% 100% 59% Calculated based on weightings of 50% for labour rates and 50%
cost (locational benchmark for capital cost (relative to benchmark)
factors) cost
Water AUD/kL 3 3 3 3 3 3 Grattan analysis based on Australian Water Association (nd)
(Australian urban desalination plants)
Note: Pilbara (low cost) is the Pilbara low cost scenario. Capital and labour cost premia relative to Eastern Australia are halved.

Table A.4: Ammonia assumptions

Sub-component Unit Assumption Source Notes
Hydrogen input kg H2 per tonne ammonia 176 Pfromm (2017)
Electricity MWh per tonne ammonia 0.3 Grattan calculations based on Pfromm Excludes electrolysis; air separation and
(ibid) ammonia condensation only
Capital cost USD per tonne ammonia rated capacity 1,124 Grattan calculations based on Incitec Inflation adjusted to 2019 US dollars
(gas-based) Pivot (2016)
Capital cost USD per tonne ammonia rated capacity 1,011 10 per cent reduction relative to
(hydrogen-based) gas-based ammonia, as steam methane
reformer not required.
Maintenance cost Share of capital cost 2% Grattan assumption Annual maintenance cost assumed to be
2% of total (upfront) capital cost
Labour input FTE per Mt ammonia capacity 81 Chemicals Technology (nd)
(gas-based)
Labour input FTE per Mt ammonia capacity 73 10 per cent reduction relative to
(hydrogen-based) gas-based ammonia, as steam methane
reformer not required.
Table A.5: Transport assumptions

Parameter Assumption Units Sources and notes
Turnaround time 6 days Grattan assumption
Handling cost 3 AUD/tonne Steel on the Net (2020c)
Charter rate 23,774 AUD/day Grattan analysis of charter rates in Fearnleys (2020)
Charter load 175,000 tonnes Grattan assumption for a 180,000 tonne capacity ship (Capesize)
Fuel cost 511 AUD/tonne Grattan analysis of Singapore fuel oil prices (IFO380) in Fearnleys (ibid)
Bunker fuel energy density 39.7 GJ/tonne Department of the Environment and Energy (2019), Table 3
Ammonia energy density 22.5 GJ/tonne Valera-Medina et al (2018)
Ammonia price 802 AUD/tonne Calculation based on assumptions in Table A.4, with US$2/kg hydrogen
Clean shipping fuel effective price 1416 AUD/equivalent tonne Calculation based on the above assumptions
Fuel consumption 0.16 tonnes/nautical mile Grattan estimate based on ship charter costs, fuel costs and cargo charter quotes in
Fearnleys (2020)

Table A.6: Transport costs for various routes

Route Start port End port Distance Time at sea Handling Charter cost Fuel cost Total cost
(one way) (round trip) cost
Nautical miles Days AUD/tonne AUD/tonne AUD/tonne AUD/tonne
Pilbara to Eastern Australia Dampier Newcastle 3034 31 3 4 8 15
Pilbara to Japan Dampier Kitakyushu 3624 36 3 5 9 17
Pilbara to Indonesia Dampier Jakarta 1203 16 3 2 3 8
Eastern Australia to Japan Newcastle Kitakyushu 4403 43 3 6 11 20
Eastern Australia to Indonesia Dampier Jakarta 1203 16 7 2 3 12
(backhaul via Pilbara)
Note: Shipping costs assume the use of green ammonia as a low-emissions fuel.
Sources: Shipping distances based on sea-distances.org (2020). Calculations based on sea distances and assumptions detailed in Table A.5 on the previous page.
. Backhaul from Eastern Australia to Indonesia involves free transport from eastern Australia to Dampier using empty ships returning to pick up a new iron
ore cargo; additional handling costs are incurred to move the product between ships at Dampier for further shipping to Jakarta.

A.3 Benchmark biofuel facilities
Plant Owner Country Status Start Primary Main products Process Output Input Ongoing FTE/Mt
year feedstock (kt) (kt) jobs output
Indian River Ineos US Closed 2013 Woodwaste Ethanol Sygnas 24 121 65 2,708
fermentation
Crescentino Versalis Italy Returning 2013 Wheat Ethanol Enzymatic 40 200 100 2,500
to service straw hydrolysis
Empyro BTG-BTL N’lands Operating 2013 Woodwaste Biocrude Pyrolysis 25
Hugoton Seaboard US Mothballed 2014 Corn stover Ethanol Enzymatic 74 330 76 1,030
hydrolysis
Project Liberty POET-DSM US Closed 2014 Corn stover Ethanol Enzymatic 59 314 70 1,185
hydrolysis
Lappeenranta UPM Finland Operating 2015 Tall oil Biodiesel, naptha Hydrogenation 130 84 646
SugarFlex GranBio Brazil Operating 2015 Bagasse Ethanol Steam 65
explosion
Iowa Verbio US Closed for 2015 Corn stover Ethanol Enzymatic 89 90 1,016
process hydrolysis
conversion
Edmonton Enerkem Canada Operating 2016 MSW Ethanol, methanol Sygnas 30 100
synthesis
Cote Nord Ensyn Canada Operating 2018 Sawdust Biocrude Thermochemical 36 65 30 833
Lakeview Red Rock US Construction 2020 Woodwaste Biocrude Sygnas 51 150 105 2,055
synthesis
Sierra Fulcrum US Construction 2020 MSW Biocrude Sygnas 36 193 120 3,355
synthesis
Kastet Pyrocell Sweden Construction 2021 Sawdust Biocrude Pyrolysis 25 80
Lieksa Green Fuel Finland Construction 2021 Sawdust Biocrude Pyrolysis 18 20 1,111
Nordic Oy
Notes: N’lands is the Netherlands. MSW is municipal solid waste. Tall oil is a wood pulp residue. Blank cells indicate data not available.
Sources: Company websites and miscellaneous sources.

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A practical plan to support carbon workers and cut emissions

Grattan Institute 2020 2

1 Australia’s climate conundrum . . . . . . . . . . . . . . . . . . . 5

2 Australia’s clean energy opportunity . . . . . . . . . . . . . . . . 14

3 Carbon workers can help capture this opportunity . . . . . . . . 26

4 Governments should plan for this future . . . . . . . . . . . . . . 34

A Technical notes, assumptions, and benchmarking . . . . . . . . 39

Grattan Institute 2020 4

1 Australia’s climate conundrum

But Australia is stuck in a climate conundrum. Political leaders need to

The future of Australia’s carbon-intensive industries, particularly coal

1. With an aspirational target of limiting warming to 1.5°C above pre-industrial levels:

Grattan Institute 2020 5

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Source: Grattan analysis of BOM (2020b). Source: N. Hughes et al (2019).

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Box 1: What is a ‘carbon worker’?

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Central Queensland has 23,200 workers in

Darling Downs: 1,800,

Collie: 1,200, Lithgow/Mudgee: 2,600,

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This report focuses on Australia’s 55,000 geographically-concentrated

Geographic concentration compounds the challenges facing each

Given these challenges, it is understandable that people who live in

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fail. Leaders from both sides of politics in Australia have asserted

The remainder of this report examines Australia’s clean energy 1,000

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2 Australia’s clean energy opportunity

Of Australia’s clean energy opportunities, the largest and most econom-

Grattan Institute 2020 14

Harnessing Australia’s renewable resources to serve an export market

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Grattan Institute 2020 16

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Australia already exports aluminium, a particularly electricity-intensive

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2.4 Australia is well placed to make green steel

A separate CSIRO study estimates that a grid-scale battery would

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today’s cost of renewable hydrogen,58 give green premia of about 60

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Australia’s renewable resources could underpin the supply of steel to

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Figure 2.3: Green steel export pathways

Iron ore Pelletising Electrolysis

Pathway 1: Produce steel Pathway 2: Produce direct Pathway 3: Export

Direct reduced DRI

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prices estimated by Bloomberg New Energy Finance71 indicate that

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3 Carbon workers can help capture this opportunity

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access. And all carbon-intensive regions have access to high-voltage

industries come under pressure, be progressively redeployed. In this

79. These regions are shown in Figure 1.4.